Fewer County Thrifts Are Leaking Red Ink : S&Ls;: Quarterly results show only 7 money-losing institutions, compared to 14 for same period in ’89. However, the combined earnings are down.

Fewer Orange County savings and loans lost money in the third quarter last year than the year before, but many of the profitable ones saw margins squeezed by a slumping economy and slipping real estate values.

As a group, the 25 county-based thrifts lost $115.9 million. But most of the red ink came from two insolvent institutions--Lincoln Savings & Loan and FarWest Savings, according to statistics released Tuesday by the Office of Thrift Supervision.

The 17 profitable institutions reported combined net income of $91.5 million. American Savings Bank in Irvine and Household Bank in Newport Beach led the way with profits of $62.3 million and $12.1 million, respectively.

Partly as a result of the sales of failed institutions last year, there were only seven money-losing S&Ls; in the third quarter, compared with 14 thrifts that leaked red ink in the same quarter of 1989.

Lincoln headed the list with a $109.4-million loss, followed by FarWest with an $89.5-million loss. Regulators seized Lincoln in 1989 and took over FarWest this month.

One thrift, New West Federal, is a self-liquidating S&L; consisting of the bad assets of the old American Savings & Loan. It does not post a quarterly profit or loss because the government covers any loss.

The quarterly results for the local industry add up to an aggregate nine-month loss of $322.7 million. Annual figures will be available in about three months.

The third-quarter numbers track the state industry, which lost $268.8 million for the third quarter. Nationally, the quarterly loss was $631.4 million.

While most of the local industry is generally profitable, the combined earnings were down from a year ago. Thrifts found it harder to make money last year, a reflection of the economic recession that is hurting real estate values in the county.

“It’s been a tough year out there,” said Robert K. Parker, president of Sterling Savings & Loan in Irvine. “Property values have slipped somewhat, and if you happen to be involved in income-property lending--those who made loans on office buildings and the like--lease rates have gone down.”

In addition, he said, prices for land and other costs associated with developing and building homes and other structures have gone up. With a recession, he said, real estate lending becomes a difficult business.

“A lot of people this year have looked at the approaching, slower economic times and have set up additional loan loss reserves,” said Stephen W. Prough, president of Western Financial Savings Bank in Irvine. “That probably has the greatest single impact on earnings.”

But, he said, the “economics” of the healthy thrifts are much better than they have been in the last four years. The traditionally slim profit margin especially has grown a little wider, and that has put needed revenue into the thrift industry, he said.

A few institutions, including Beverly Hills Savings Bank in Mission Viejo, have enjoyed better times with the help of the federal government. Regulators gave financial assistance to buyers of failed thrifts.

They gave an $811-million note, for instance, to help Michigan National Corp. in Farmington Hills, Mich., take over the failed Beverly Hills Savings & Loan. The federal government paid the newly restructured thrift about $100 million in tax-free interest on that note last year, said Edward J. Sondker, the thrift’s president.

But while the thrift earned $4.8 million for the third quarter, the sanitized Beverly Hills Savings would still have earned a “substantial” amount without federal help, he said.

The county’s thrifts--ranging from giant American Savings with $17.3 billion in assets to tiny Pioneer Savings Bank with $25.8 million in assets--also have had to battle the increasing demands of the 1989 federal law that restructured the thrift industry, prohibited certain lines of business and mandated higher levels of capital.

For some of the healthy thrifts, the amount they can earn has been severely hampered.

Sterling Savings, for instance, plans to get out of the business one way or another. A possible sale to one buyer fell through after yearlong negotiations, Parker said. Now it is simply selling its loans to pay off depositors and, if no sale occurs, will eventually pay off all depositors and leave the business, he said.

The savings and loan business simply isn’t what the owners of Sterling want to devote themselves to because the potential earnings are too low, he said. Sterling’s operations were based on its home-building unit, but such investments in real estate are now prohibited by the 1989 law.

Parker has some precedent for slowly liquidating the thrift.

A healthy Redding thrift recently liquidated itself, claiming that excessive regulation has made it impossible to make enough money.

Sterling, with about $70 million in loans to sell and $20 million in capital, can easily afford to pay off its $69 million in deposits. Meanwhile, its huge amount of capital has made it perhaps the strongest thrift in the nation.

ORANGE COUNTY S&L; SCOREBOARD

Third quarter, 1990, results

Ranked by assets ASSETS (millions) Bank 1990 1989 American $17,349.8 $15,957.3 New West Federal (a) 8,110.4 15,958.9 Household Bank 7,655.9 7,019.3 Downey 4,036.4 3,826.5 FarWest (b) 3,828.1 4,806.4 Western Financial 3,097.4 2,775.0 Lincoln (b) 2,572.5 3,692.6 Union Federal (d) 2,456.7 2,343.2 Beverly Hills 1,456.8 1,606.3 ITT Federal 1,142.2 885.5 United California 643.2 663.7 Guardian 606.3 574.4 Fullerton 348.1 358.0 Charter (c) 248.9 387.9 San Clemente 264.3 332.6 Universal 288.2 262.8 Standard Pacific 265.1 245.2 Malibu (b) 145.1 207.0 Sterling 122.0 178.6 Beach (b) 85.0 108.7 Irvine City 96.1 86.0 Plaza 101.3 63.3 Delta 68.0 60.0 Cornerstone 61.3 60.4 Pioneer 25.8 14.1 Pacific (c) na 965.3 University (e) na 81.1 Security Federal (c) na 71.0 American Interstate (c) na 25.2 Orange County Total 55,074.9 63,616.3

Ranked by assets TOTAL CAPITAL NET INCOME % % % (thousands) Tangible Core Risk 1990 1989 American 3.6 3.6 13.3 $62,266 $34,937 New West Federal (a) 0.0 0.0 0.0 0 0 Household Bank 3.3 4.2 8.4 12,052 3,255 Downey 3.8 3.8 8.3 3,692 -3,710 FarWest (b) -3.2 -3.0 -3.5 -89,526 -21,019 Western Financial 3.8 3.8 8.3 2,458 4,084 Lincoln (b) -112.0 -112.0 -121.3 -109,441 -60,468 Union Federal (d) 3.2 3.5 5.4 921 15,622 Beverly Hills 6.8 6.8 175.2 4,807 1,364 ITT Federal 5.3 5.3 8.2 1,107 2,105 United California 3.7 3.7 6.8 -550 -4,122 Guardian 3.4 3.6 6.0 1,533 -4,827 Fullerton 4.4 4.4 6.9 517 2,714 Charter (c) na na na -418 -209 San Clemente 2.0 2.5 3.4 242 722 Universal 4.3 4.3 8.9 -129 516 Standard Pacific 6.3 10.2 10.5 395 -460 Malibu (b) 1.8 3.0 4.3 -146 92 Sterling 16.0 16.0 22.7 697 1,258 Beach (b) -1.6 -1.6 -2.2 -7,303 994 Irvine City 4.1 4.1 9.5 -71 -123 Plaza 4.6 4.6 8.1 551 819 Delta 3.6 4.2 6.5 116 -286 Cornerstone 4.9 4.9 6.6 2 -106 Pioneer 11.9 11.9 24.8 5 -90 Pacific (c) na na na na -15,683 University (e) na na na na 24 Security Federal (c) na na na 0 -5,288 American Interstate (c) na na na na -35 Orange County Total -3.2 -3.0 -5.7 -115,931 -47,920

At the end of September, federal law required thrifts to have capital levels of 1.5 tangible, 3 core and 6.4 risk-based.

(a) Self-liquidating S&L; consisting of old American Savings & Loan’s bad assets.

(b) Seized and operated by regulators.

(c) Seized by regulators and sold or closed.

(d) Moved into county from Los Angeles in 1990.

(e) Moved out of county.

Source: Office of Thrift Supervision.