Most Report Scant Job Gains; Washington Mutual Repeats as No. 1
Orange County’s savings and loans turned around a deposit decline and posted a 3% gain for the 12 months ended June 30, according to the Business Journal list.
The 18 thrifts in the county reported total deposits here of $14.06 billion, up from $13.77 billion last year. In 1998, there were $14.14 billion in deposits in OC S & Ls.;
Industry experts said the drop-off last year was due to a consumer shift from deposits to money-market instruments and stocks. The increase this year is being attributed to general growth in the economy and a volatile stock market that is sending consumers back to safer havens.
“The industry is doing very well. It has been continually doing better over the last four or five years,” said Karen Dorway, a vice president and director of research at Bauer Financial Reports.
Meanwhile, total employment at the S & Ls; rose 28% to 5,491, but that rise was almost entirely due to an increase of nearly 1,200 local jobs at No. 1 Washington Mutual. The rest of the list grew employment a scant 1%.
Washington Mutual spokesman Tim McGarry said the firm added 400 local jobs with the acquisition of subprime lender Long Beach Mortgage and also grew its securities and mutual fund operations at the area headquarters in Irvine significantly. Other job growth was spread “across all departments” in the Irvine facility, he said. Washington Mutual added no branches in the year, and branch employment remained flat.
The two largest thrifts in the county, Washington Mutual and California Federal Bank, were the biggest losers in deposits, dropping almost $600 million between them. But the remaining thrifts made up the difference and then some.
Seattle-based Washington Mutual has been No.1 on the Business Journal list of savings and loans, which is ranked by deposits in Orange County, for the past two years. Its acquisitions of American Savings in 1996, Great Western in 1997 and Home Savings of America in 1998 secured its position as the county’s largest, as well as the national title.
Washington Mutual’s deposits in Orange County dropped by a half-billion dollars this year, or 8%, which is the same amount they declined the year before for a total of almost $1 billion in two years.
“It is not a big focus,” said Michael Amato, a senior vice president with the thrift. He said the drop in deposits is due to conversion of funds to other, non-depository investments.
Amato said Washington Mutual counts four or five other measures as more important than deposits, such as customer and account growth.
“We are still in business,” he said jokingly.
Washington Mutual’s drop in deposits locally is in line with the company’s nationwide trend. The thrift had a drop of 4% in company-wide deposits, from $69.6 billion to $66.5 billion as of June 30.
No. 2 on the list, San Francisco-based California Federal Bank, dropped 5% of its local deposits, to $1.84 billion. And just like Washington Mutual, the local trend mimics the S & L;’s national performance. California Federal’s company-wide deposits dropped 3%, or almost $1 billion, to $23.6 billion. But the company grew its local employment by 46 this year, and now has 562 jobs here.
No. 3 World Savings & Loan grew its deposits by $131.1 million, or 8%, to $1.831 billion, just enough to fend off No. 4 Newport Beach-based Downey Savings & Loan. World’s company-wide deposits grew 10% to $24.49 billion, up from $22.2 billion last year.
Downey enjoyed a 30% growth in Orange County deposits this year to $1.829 billion. The thrift saw increased adjustable rate mortgage production, a trend that has been growing in the past three years. Downey grew its branch network last year by 13, to 104 branches total, and plans to expand by about the same number in the next year. Downey also jumped on the Internet and expanded its subprime lending operations.
It also shed its auto-finance division in the fall to concentrate on its other operations. The thrift raised $120 million in an issue of capital securities, and has plans to grow its bread-and-butter residential lending operation with the new capital.
In the second quarter, Downey recorded a 43% increase in assets to $10.5 billion from a year earlier. The bigger balance sheet has helped the company produce more earnings, analysts said. For the second quarter, the company had earnings of $22.5 million, or 80 cents per share, up from 53 cents a share in the prior period.
Downey has also had recent gains in its stock price and is trading around the 45 range, up from around 20 in late spring. But Downey is not the only thrift that is getting stronger earnings and stock prices.
“Investors are getting more excited about thrifts in general,” said Paul Miller, an analyst with Friedman, Billings, Ramsey Group Inc.
Despite the growth, the loss of the auto-finance division gave the company a net drop in its total Orange County employment of 3%, to 1,094.
No. 6 Western Financial Bank grew its OC deposits by 56% from last year, from $464.0 million to $724.1 million. The thrift’s retail division customers are individuals and small businesses. The thrift offers money market accounts, certificates of deposit and other investment services. Its commercial division focuses on small and medium-size businesses in Southern California, offering loans, lines of credit and trade finance services, as well as account analysis and cash management. The company’s deposits supply WFS Financial, an automobile lending division of the bank.
No. 13 Life Bank had growth of 177% in local deposits from $40.5 million to $112.3 million. Life Bank added two branches in Orange County in the past year, both in Huntington Beach, which company officials attribute to the growth in deposits. Life Bank is headquartered in Riverside and has six branches in Southern California. The company is undergoing a change to become more bank-like.
“We have taken a number of steps to implement our plan to transform the bank. During the third quarter, we discontinued our mortgage banking business and the origination of subprime and consumer loans,” said Steven Gardner, the bank’s president and chief executive officer.
The way of savings and loan may not be here forever. Some industry experts said that the thrift industry is changing.
“Most of the thrifts have divided into two camps. One continues to be a mortgage lender, even though it is a low-margin business. But they know it well,” said Ed Carpenter, chairman of Carpenter & Company, an investment bank in Irvine. Carpenter said the other camp is that of thrifts that are trying to become more like banks. Some of the thrifts are developing commercial loan platforms and engaging in Small Business Association lending.
“With the Financial Modernization Act, there are only a few things a thrift can do that a bank can’t and vice versa,” Carpenter said. But it is costly and time-consuming for a thrift to change its business model. Thrifts would have to reorganize their loan portfolios, since their assets are heavily in real estate. They would also have to develop a commercial line of business.
“We are trying to be less and less thrift-like, we are trying to be like a commercial bank without the commercial loan credit risks. That is our focus,” Amato said.
But the change in the thrift industry has been going on for some time.
“It’s not anything particularly new,” Dorway said. She said thrifts have been changing the way they have been doing business for the past seven or eight years. There have been several thrifts that have changed their operations and their names to reflect bank-like operations. Some have given up their thrift charters for bank charters.
“Some of them did it successfully. But a lot of them went into something they didn’t know anything about,” Dorway said.
Federal regulators are getting cautious about thrifts, especially since last year’s passage of the Financial Modernization Act, which allows banks and thrifts to join forces with other financial services companies.
The Office of Thrift Supervision (OTS), the main regulator for savings and loans, issued a proposed rule that would require some savings and loan holding companies to notify the OTS 30 days before undertaking certain significant new business activities. The proposal covers activities that significantly increase holding company debt, reduce capital substantially or involve certain asset acquisitions, according to a release by the OTS. n
