County’s S&Ls; Post Profits Again, Reviving Industry Hopes : Thrifts: Combined net income of $63.9 million in second quarter may mean annual earnings will be back in the black for first time in almost a decade.

Orange County’s 22 savings and loans posted profits for the second straight quarter, raising hopes once again that the local industry would finally pull its annual earnings out of the red.

The county-based thrifts reported combined net income of $63.9 million for the second quarter, well ahead of the $17.6-million profit recorded in last year’s second quarter by the 25 thrifts then based in the county.

Net income for the first six months rose 77% to $145.7 million from $82.4 million last year, according to statistics released Tuesday by the federal Office of Thrift Supervision.

The local industry hasn’t posted a profitable year for nearly a decade. Last year’s profits over three quarters were wiped out by big fourth-quarter losses.

For the first time, though, there are no failed multibillion-dollar thrifts dragging down the earnings of the rest of the local industry. Gone are such major money-losers as Lincoln, FarWest and Beverly Hills savings and loans, whose red ink only multiplied during the years they were operated by federal regulators.

The biggest loss for the first six months of this year was $8.8 million chalked up by failed Guardian Savings & Loan in Huntington Beach, which has been operated by regulators for the last 15 months.

Union Federal Savings Bank, owned by Brea-based UnionFed Financial Corp., is the only big thrift in private hands that lost big money. But it has stemmed its red ink and shored up its capital levels. It lost $6.3 million in the first half of this year, contrasted with a loss of $54.9 million in last year’s first half.

Though the local industry posted solid profits, led by giant American Savings Bank’s $80-million first-half earnings, thrift executives are wary about their prospects for continued success throughout the rest of this year.

The earnings for local thrifts came mainly from a larger profit margin caused by interest rates that fell faster on deposits than they did on loans.

“Now, margins are shrinking because loan rates are going down faster than deposit rates,” said Edward H. Sondker, president and chief executive of Beverly Hills Business Bank, a Mission Viejo thrift. “There’s always a lag time, but the loan side is beginning to catch up.”

Heavy regulations, as well as heavy-handed regulators, also have been the bane of the industry in the last few years, but some see regulators taking a more reasonable approach in recent months.

“I think the regulators, at least in the thrift industry, have become more like consultants and have actually played a positive role since the beginning of the year,” said William S. Smith, who was installed two months ago as Irvine City Bank’s president and chief executive. “Perhaps that’s because of the moratorium on new regulations.”

President Bush, facing a stiff reelection campaign, has been urging regulators to ease up on financial institutions. Banks especially have refused to make somewhat risky loans for fear of incurring the wrath of regulators and further write-downs in their loan portfolios.

Orange County S&L; Scoreboard

Results for Second Quarter, 1992

Ranked by assets

ASSETS TOTAL CAPITAL ** (millions) as % of assets Savings and Loan** 1992 1991 Tangible Core Risk-based American $17,555.8 $16,979.8 4.3 % 4.3 % 11.9 % Household Bank 8,751.9 8,865.1 3.7 4.4 11.2 Downey 3,511.1 4,064.4 7.3 10.3 13.7 Western Financial 2,543.1 2,777.2 5.7 5.7 11.0 Union Federal 1,636.8 2,154.2 2.6 2.9 5.2 ITT Federal 1,513.0 1,264.8 5.4 5.4 8.2 Beverly Hills 1,095.5 1,262.6 10.7 10.7 31.3 Long Beach 800.7 788.0 4.7 4.7 7.9 United California 530.2 611.3 3.9 4.0 8.1 Guardian * 345.1 680.0 -6.5 -6.5 -5.5 Standard Pacific 350.7 298.1 6.4 6.4 10.7 Fullerton 343.1 336.1 6.8 6.8 10.1 Plaza 315.7 227.9 7.1 7.1 14.2 Universal 239.2 262.8 5.5 5.5 11.1 San Clemente * 221.1 249.9 1.0 1.5 3.0 Irvine City 105.1 104.2 4.2 4.2 9.7 Golden State 61.7 52.4 2.8 3.8 9.1 Cornerstone 55.7 60.5 4.2 4.2 5.9 Delta * 49.0 64.0 -2.7 -2.7 -133.1 Pioneer 53.6 51.5 6.0 6.0 12.7 Sterling 43.5 81.8 20.3 20.3 21.4 First Newport * 28.4 69.5 -1.1 -1.1 -1.7 Orange County $40,150.0 $41,305.4 4.6 % 5.0 % 11.0 % totals

NET INCOME *** (thousands) Savings and Loan** 1992 1991 American $33,026 $46,937 Household Bank 15,327 14,008 Downey 11,427 11,281 Western Financial 4,420 5,398 Union Federal -4,767 -1,476 ITT Federal -368 4,096 Beverly Hills 1,423 2,412 Long Beach 3,835 1,790 United California 109 -386 Guardian * -1,865 6,887 Standard Pacific 911 885 Fullerton -2,433 771 Plaza 3,738 3,234 Universal 315 138 San Clemente * 284 -111 Irvine City 120 70 Golden State 73 -27 Cornerstone 42 34 Delta * -835 -87 Pioneer -105 127 Sterling -447 -262 First Newport * -284 -96 Orange County totals $63,946 $81,849

* Seized and being operated by regulators. ** Since the end of June, 1991, regulators have sold and closed three S&Ls; that had a total of $3.1 billion in assets and lost $43.1 million in the first half last year.

NOTE: Federal law requires S&Ls; to have at least 1.5% tangible, 3% core and 7.2% risk-based capital as a ratio to assets.

Source: Office of Thrift Supervision