Orange County's 34 savings and loans posted a combined loss of $534.1 million during the first 9 months of 1987, setting the stage for a record annual deficit.
The red ink poured almost entirely from eight troubled institutions, including American Savings & Loan, which alone lost $243.7 million during the 9 months.
Another eight S&Ls reported less severe losses while the remaining 18 were profitable, according to regulatory figures compiled and released this week by Sheshunoff & Co., an Austin, Texas, industry consulting firm. Financial results for the full year are not yet available.
Six of the big eight money losers are failed institutions seized by regulators and operated by new managers they hired. The other two big losers--American Savings and Pacific Savings Bank in Costa Mesa--were not seized but are operating under new management put in place by regulators.
The 9-month loss is more than five times the total loss reported by Orange County S&Ls in each of the previous two years and close to the record $546.3-million loss posted in 1984.
"Once you subtract out those (eight) institutions that already have been recognized as problems and continue to lose money, the balance looks pretty good," said William Davis, chief deputy commissioner of the state Department of Savings and Loan.
"Overall, I think California fares extremely well in regard to the rest of the country," Davis said.
Statewide, California's 210 S&Ls--which represent about a quarter of the assets of savings institutions nationwide--reported net income of $486 million in the first 9 months of 1987.
Nationwide, the industry produced a 9-month loss of $2.5 billion, mainly reflecting problem loans in Texas and other southwestern states.
"The county S&Ls--the ones not being run by regulators--are generally healthy and enjoyed a very good year," said Edward Carpenter, a Costa Mesa consultant to financial institutions.
Carpenter and Davis said the results posted by the 26 other county-based S&Ls are representative of the performance of savings institutions across the state.
"The statewide numbers reflect the continuing strong performance of the large, publicly traded companies, which have continued to strengthen their capital positions and to operate profitably," said Kirk Hallahan, a spokesman for the California League of Savings Institutions, a trade association.
But both Hallahan and Carpenter said S&Ls statewide expect a slower fourth quarter and lower earnings this year than in 1987.
The problems at American Savings skew the combined statistics for Orange County S&Ls. With $33.4 million in assets, it is the nation's largest savings institution and is bigger than all of the county's other S&Ls combined. American's main office is in Stockton, but it is operated from the Irvine headquarters of its parent company, Financial Corp. of America.
"American is the biggest S&L problem in the country," said Salvatore Serrantino, a Santa Monica consultant for savings institutions. "It's too big to close, and regulators don't have the money to close it. This is really an institution that is handled separately from the rest of the industry."
The Federal Home Loan Bank Board, which has been trying to sell American, broke off talks last week with the only known serious bidder, Ford Motor Co. and its S&L subsidiary, First Nationwide Bank.
The six failed institutions that the bank board is keeping open and Pacific Savings recorded $396.3 million in losses. The six failed S&Ls are Beverly Hills Savings, North America Savings, American Diversified Savings, Ramona Savings, Butterfield Savings and Perpetual Savings.
Orange County's S&Ls reported total losses of $70.6 million in 1986 and $56 million in 1985. They lost $546.3 million in 1984, but the amount was attributable to the $565 million that American alone dropped that year.
"In a way, it's a disservice to talk about the county's savings and loans as a group because they are a non-homogeneous group," Serrantino said. "There's such a divergence of game plans and performance."
There is little hope that last year's fourth quarter will improve overall figures for S&Ls throughout the state, Hallahan said.
Fewer new loans and refinancings last year, especially after the Oct. 19 stock market free fall, produced fewer loan fees for savings and loans. S&Ls also put more money into reserves, reducing their reported profits, he said. And institutions will be hit with a one-time higher tax rate--36.8%--for 1987 under the new federal tax law.
Carpenter noted that new accounting requirements also will lower income levels by forcing S&Ls to spread the income they receive as loan fees over the life of the loans instead of recording the total amount of the fees at the time the loans are made.
While the economy may slow in Orange County this year, Carpenter said, financial institutions should be able to cash in on increased commercial construction in the county's north and central areas.
WINNERS, LOSERS AMONG COUNTY THRIFTS BIGGEST PROFITS
(1987 9 months)
Downey S&L $29.4 million
Lincoln S&L 25.9 million
Far West S&L 20.4 million
Western Financial SB 7.5 million
Household Bank 6.9 million
(1987 9 months)
American S&L (Fin. Corp. of America) $243.7 million
Beverly Hills S&L 98.1 million
North America S&L 84.6 million
American Diversified SB 83.0 million
Pacific SB 50.0 million
Source: Sheshunoff & Co.