Combined Income of 14 S&Ls; Drops 30% for 3rd Quarter : Thrifts: Rising interest rates and waning demand for loans are blamed. However, only 4 of the institutions lost money.

TIMES STAFF WRITER

Orange County's savings and loans, feeling the effects of last year's rising interest rates and lackluster loan demand, saw their combined income for the third quarter slide 30% to $53.2 million.

The county's 14 S&Ls--less; than half the number that existed here a decade ago--had earned $76.5 million for the third quarter of 1993, when interest rates were at their lowest level in years and homeowners were refinancing their mortgages to bring down monthly payments.

In 1994, however, higher rates put a stranglehold on refinancings, and the market for home-purchase loans did not pick up enough to fill the void.

"Everyone was scrambling around last year to make loans, and there was not a high demand for them," said Ronald McGee, regional president for Household Bank, an S&L; based in Irvine. At the same time, he pointed out, rising interest rates forced thrifts to pay more for deposits, and that cut into historically slim profit margins.

Household, which owns the nation's eighth-largest credit-card service and operates thrifts in six other states where the economy has greatly improved, was one of only five local thrifts that increased their earnings over the previous year's third quarter.

For the first nine months of 1994, local S&Ls; earned an aggregate $173.5 million, down 26% from the previous year's income of $235.3 million, according to figures provided by the U.S. Office of Thrift Supervision.

Household, with $8.4 billion in loans and other assets, is the county's second-largest thrift. It far outdistanced its local competitors by earning $40.6 million for the third quarter. American Savings Bank in Irvine, the nation's fourth-largest thrift, earned $20.2 million and reported $17.7 billion in assets.

Two other large thrifts--Downey Savings & Loan in Newport Beach and Western Financial Savings Bank in Irvine--posted quarterly income of $5.7 million and $5.2 million, respectively.

Despite lower overall earnings for the local industry, only four thrifts lost money.

Plaza Home Mortgage Bank in Santa Ana saw its mortgage banking operation, which sells all the loans it makes, get hammered by higher rates. It lost $10.7 million for the third quarter, which caused the thrift to fall below two federally mandated levels of capital, its final cushion against losses.

Worse, the huge loss forced Plaza to lower the price of its pending sale to Fleet National Bank by 26%, to $89 million from an original price of $120 million.

Union Federal Savings Bank in Brea, the only other county thrift failing to meet capital standards, lost $3.6 million for the quarter, but that was an improvement over the $4.1 million it lost for the same period a year earlier.

ITT Federal Bank in Irvine and Cornerstone Savings Bank in Mission Viejo lost $3.3 million and $3 million, respectively. Regulators seized and closed Cornerstone in mid-December.

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Orange County S & L Scoreboard

The 14 savings and loans in Orange County were hit by rising interest rates and an accompanying drop in demand for loans as income fell by 30% in the third quarter of 1994, compared to the year before. Third quarter 1994 results, ranked by total assets:

ASSETS CAPITAL ADEQUACY* (millions) Capital as % of assets Savings and Loan 1993 1994 Tangible Core Risk-based American $17,308.6 $17,726.7 5.2% 5.3% 11.4% Household Bank 9,144.6 8,442.6 6.4 7.0 16.6 ITT Federal 2,984.0 4,220.6 5.3 5.3 11.4 Downey 3,491.9 4,031.9 8.1 8.1 15.6 Western 2,181.8 2,462.9 7.5 7.5 14.6 Financial Plaza 686.2 948.5 2.2 2.2 5.3 Union Federal 982.0 912.1 3.1 3.4 6.5 Independence One 1,011.0 483.5 9.5 9.5 16.4 Standard Pacific 360.9 423.2 6.2 6.2 12.8 Fullerton 342.9 263.3 5.7 5.7 11.7 Universal 227.9 208.6 5.9 5.9 11.3 Irvine City 88.0 81.2 6.4 6.4 13.0 Pioneer 58.3 60.9 6.1 6.1 13.5 Cornerstone (a) 51.8 44.3 -1.1 -1.1 -1.5 Orange County $38,919.9 $40,310.3 5.9% 6.0% 13.3% totals

NET INCOME (thousands) Savings and Loan 1993 1994 American $24,933 $20,190 Household Bank 31,449 40,594 ITT Federal 6,470 -3,326 Downey 7,708 5,668 Western 3,376 5,155 Financial Plaza 3,954 -10,712 Union Federal -4,086 -3,607 Independence One 3,087 1,275 Standard Pacific 428 14 Fullerton -943 613 Universal -101 76 Irvine City 203 38 Pioneer 104 194 Cornerstone (a) -52 -2,990 Orange County $76,530 $53,182 totals

* Federal law requires S&Ls; to have 1.5% tangible, 4% core and 8% risk-based capital as a ratio to assets.

(a) Regulators seized and closed Cornerstone on Dec. 16.

Source: Office of Thrift Supervision

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