Capital City Federal Savings and Loan Association, the Washington area's 23rd largest thrift institution, plans to merge with Northwestern Federal Savings and Loan Association, 34th largest. The decision came one day after the fifth biggest S&L, Interstate, filed a formal application to merge with Metropolis, 33rd largest.
Last week Security Savings and Loan Association in Baltimore was sold to Sharon Savings and Loan. And Friendship Savings and Loan in Chevy Chase was bought by a group of real estate developers.
S & L's recently have came upon very difficult times. Savings outflows and greatly diminished laon activity have cut profits to a minimum, and some associations are already operating in the red. In the Washington area, however, most are believed to have sufficient reserves to bring them through this crisis.
Nevertheless, there is hardly an S&L here that isn't seeking to cut costs, either by laying off personnel or by merging with another thrift institution. One industry observer predicts that only half of the 16 associations in the Metropolitan Washington Savings & Loan League would still be in existence in three years.
Unlike Washington Federal Savings and Loan Association of Cleveland, which the federal government ordered taken over this week, the mergers occurring in the District are voluntary. The mergers simply make business sense, officials contended.
Some mergers are designed to prevent collapse of a weak institution and are consummated with quiet supervision by government regulators to avoid panic by depositors. The recent Maryland mergers involving Security and Friendship S&Ls apparently involved this sort of behind-the-scenes work to organize a merger.
But in today's financial climate, merger rumors are abounding. Thomas Owen, chairman of Perpetual, was questioned about a rumored takeover of American Federal S&L. "I think that rumor started 90 days ago when Bill Sinclair (American's president) and I shared a hotel suite in Florida," Owen joked. "We decided to merge alte one night but then couldn't remember the next morning who was to become president."
Owen said that even though that deal wouldn't work, he was still looking at all S&Ls as possible merger candidates. Perpetual recently bought $10 million of discounted loans from the developers who took over Friendship.
Dewitt Hartwell, president of First Federal Savings and Loan Association discounted the rumor that his institution was going to merge with Eastern Liberty: "They see you having lunch with somebody and immediately think you are going to merge," he said. Hartwell added that he was not looking for a merger candidate.
Then there is the rumor about Metropolitan Federal and County Federal, whose presidents attended the same meeting this week. That rumor turned out to be two years old and no longer a possibility. However, the Rockville-based County Federal does intend to convert to a stock association, a move that increases an S&L's capital and makes it a more attractive partner in a merger.
At the same time, County President Robert Reeves yesterday dismissed reports from industry sources that his S&L is suffering financial problems because of having made too many bad construction loans. "We're in as good a financial situation as any S&L in the area," Reeves said: "We're still in the black. We had a couple of contractors go bankrupt and we had to finish some houses. But we have good reserves."
The Federal Home Loan Bank Board's Office of Examination and Supervision also took the unusual step of volunteering the information yesterday that County Federal was under examination. A spokesman said the board did not want the public to worry about the S&L's condition. "We find County is not in any imminent danger of default)," he said.