S&L; Industry in O.C. Rebounds, Posts ’92 Profit : Thrifts: Low interest rates spurred home loan refinancing, which generated earnings or kept losses low for many firms.

Buoyed by a runaway refinancing market, Orange County’s savings and loan industry ended a decade-long drought by posting a profit of $302.1 million for 1992.

In previous years, local thrifts’ earnings have been dragged down by losses at failed S&Ls; that regulators seized but continued to operate. Last year, such failures among the county’s 22 thrifts didn’t damage earnings much.

The same S&Ls; earned a profit for 1991, but the industry as a whole lost $20.6 million, mainly because of a $240-million loss at failed FarWest Savings & Loan in Newport Beach, which has since been sold by regulators.

In 1992, low interest rates spurred refinancing of home loans, and that helped many thrifts post profits or keep losses low.

“The prepayment that occurred throughout the industry was just phenomenal,” said F. Anthony Kurtz, president of Downey Savings & Loan in Newport Beach. “Our loan origination volume nearly tripled, but we barely increased our loan portfolio.”

He said lenders made about $960 million worth of new loans last year, but borrowers, mostly those refinancing their mortgages, paid off $900 million in loans early.

“Had we not been able to expand our loan originations, we would have had a lot of cash sitting around from prepayments,” Kurtz said.

Downey, the county’s third-largest S&L;, earned $41.9 million last year. The two larger institutions, American Savings Bank in Irvine and Household Bank in Newport Beach, posted profits of $252.6 million and $66 million, respectively.

Two small institutions--Plaza Savings & Loan in Santa Ana and Newamerica Savings Bank in Irvine--earned $14.5 million and $6 million, respectively, putting both far ahead of other thrifts their size. Both are essentially mortgage bankers. By quickly selling all new loans to investors, they generate cash to do more lending and earn more money.

Many thrifts also benefited from new laws that discourage almost any kind of risky lending, said Graham Williams, acting president of ITT Federal Bank in Irvine.

Managers either set aside cash to cover future losses or were forced to do so by regulators, he said. The result was that many institutions were able to absorb losses last year with little or no effect on their earnings or their capital--their final cushion against losses. Meanwhile, Williams said, they had fewer new loans that soured.

ITT Federal, though, wasn’t one of those. It lost $7.2 million for the fourth quarter and $856,000 for the year as it set aside money to cover possible losses on commercial and apartment loans. Williams said the thrift has switched its strategy to become a single-family home lender.

Among the 10 thrifts in the red for 1992, failed Guardian Savings & Loan in Huntington Beach led, with a loss of $52.4 million. Troubled Union Federal in Brea was No. 2, with a $17.9-million loss, followed by failed San Clemente Savings Bank in Irvine, which lost $16.7 million.

The local thrift industry generally expanded its capital cushion. Only three thrifts--large Union Federal and tiny Golden State Bank in Irvine and Cornerstone Bank in Mission Viejo--fell below one or more required levels of capital.

Orange County S & L Scoreboard

1992 Results

Ranked by assets ASSETS TOTAL CAPITA (millions) Tangible Core capital capital Savings and Loan 1992 1991 %/assets %/assets American $17,283.4 $16,922.2 4.6 4.6 Household Bank 9,581.7 8,551.0 4.5 5.1 Downey 3,483.4 3,776.4 8.2 8.2 Western Financial 2,482.4 2,671.0 5.7 5.7 ITT Federal 1,693.7 1,390.1 5.2 5.2 Union Federal 1,358.7 1,813.2 2.3 2.6 Independence One (b) 1,010.5 1,208.1 12.1 12.1 Long Beach 720.4 797.7 6.3 6.3 United California 501.8 591.8 4.3 4.3 Standard Pacific 395.0 341.1 6.2 6.2 Plaza 334.9 330.6 10.7 10.7 Fullerton 314.0 333.8 5.9 5.9 Universal 224.0 242.9 5.8 5.8 Guardian (c) 221.7 451.7 -30.3 -30.3 Newamerica 163.4 126.6 6.4 6.6 San Clemente (c) 109.9 229.5 -14.1 -13.1 Irvine City 90.4 104.6 5.5 5.5 Golden State 57.4 53.7 2.1 3.1 Cornerstone 55.5 58.3 4.7 4.7 Pioneer 49.2 51.6 7.0 7.0 Delta (c) 21.3 59.2 -5.2 -5.2 First Newport (c) 19.5 39.9 -5.7 -5.7 Orange County Totals (d) $40,172.2 $40,145.0 4.9 5.1

Ranked by assets L (a) Risk-based capital Savings and Loan %/assets American 11.9 Household Bank 12.5 Downey 14.4 Western Financial 8.6 ITT Federal 8.7 Union Federal 5.0 Independence One (b) 27.3 Long Beach 12.0 United California 8.8 Standard Pacific 11.0 Plaza 17.5 Fullerton 10.7 Universal 12.1 Guardian (c) -31.5 Newamerica 14.0 San Clemente (c) -15.8 Irvine City 12.3 Golden State 6.9 Cornerstone 7.1 Pioneer 14.5 Delta (c) -9.2 First Newport (c) -9.0 Orange County Totals (d) 11.3

Ranked by assets NET INCOME (thousands) Savings and Loan 1992 1991 American $252,546 $181,492 Household Bank 65,961 67,598 Downey 41,850 24,859 Western Financial 1,019 18,957 ITT Federal -856 17,456 Union Federal -17,936 -69,767 Independence One (b) 8,820 9,258 Long Beach 6,264 7,480 United California -226 -4,338 Standard Pacific 3,760 3,499 Plaza 14,490 9,254 Fullerton -9,082 -1,367 Universal 302 -3,336 Guardian (c) -52,355 -28,227 Newamerica 6,031 3,107 San Clemente (c) -16,690 -7,098 Irvine City 671 377 Golden State -496 103 Cornerstone -360 60 Pioneer 295 445 Delta (c) -700 -3,604 First Newport (c) -1,182 -331 Orange County Totals (d) $302,126 $225,877

(a) Federal law requires thrifts to have 1.5% tangible, 3% core and 8% risk-based capital.

(b) Formerly Beverly Hills Business Bank.

(c) Seized and operated by regulators. First Newport formerly was called University Savings Bank.

(d)Totals for 1991 do not include losses from Sterling, which self-liquidated, and from failed FarWest. Both reduced countywide total to a $20.6-million loss.

Source: Office of Thrift Supervision