Westcorp Posts $4.3 Million in Net Income

Maintaining a strong emphasis on consumer lending through the recession, Westcorp Inc. reported net income of $4.3 million for the first quarter, a 48% increase over $2.9 million earned in the same period last year.

The holding company for Irvine’s Western Financial Savings Bank posted higher earnings even though it socked away $2 million in reserve for possible future loan losses.

Strengthening the reserve to nearly 1% of its loans “is in line with our view of the market, the economy and our effort to remain conservative,” said Stephen W. Prough, president of the company and the savings and loan.

The company’s assets grew 7% to $3.1 billion at the end of March from $2.9 million a year earlier.

The thrift’s large auto-loan department helped pick up the slack demand for home loans by funding $194 million in vehicle loans in the first quarter, compared with $189 million in last year’s first quarter. But the continued slump in housing caused overall loans to drop 15% to $261 million in the first quarter.

Western Financial, created in 1982 by the merger of a thrift and loan active in auto loans and a small S&L;, recently sold $200 million in auto-loan receivables to a trust that will issue securities to investors. The securities are backed by the loans.

This is the largest of the 13 auto-loan packages that Western Financial has sold since it pioneered the securities program in late 1986. So far, the thrift has sold $1.7 billion in auto loans for use as collateral to back securities.

Westcorp’s first-quarter earnings were also helped by Western Financial’s elimination of nearly all of its junk bond holdings.

The thrift had about $100 million in risky, high-yield corporate securities when an August, 1989, federal law required thrifts to dispose of such holdings within five years.

The law was partly blamed for sending the junk bond market reeling, and Western Financial had to put nearly $4 million in reserve in last year’s first quarter for possible securities losses.

This year, with only $1.1 million in junk bonds at the end of March, the thrift put a meager $381,000 in reserve for possible securities losses.