Though last year has been hailed as the thrift industry's best since 1978, prosperity continued to elude a significant number of savings institutions in the District, according to profit and loss statements submitted to federal regulators.
The District institutions' performance was in sharp contrast to that of federally insured thrifts in Virginia and Maryland, which generally did quite well despite the collapse of the state-insured thrift system in Maryland.
These trends emerge from the profit and loss statements for the first nine months of 1985 released recently by the Federal Home Loan Bank Board. Collectively, institutions in the District, Maryland and Virginia had profits totaling $126 million during the first nine months. That compares with just $7.8 million in the same period the previous year, according to the bank board, which regulates federally insured thrifts.
In the three jurisdictions, 85 percent of federally insured savings and loans and savings banks operated in the black last year, slightly better than the national average. Whereas during the first three-quarters of 1984 they collectively lost 14 cents on every $100 of assets, they did a turnabout and earned 33 cents per $100 during those months in 1985.
However, of the seven institutions in the city at the beginning of the year, one has been merged out of existence, a second is a candidate for such a merger, and a third continued to operate at a loss, though on a modest scale.
National Permanent Bank, the candidate for supervisory merger -- or possibly recapitalization -- showed a loss of more than $52 million, several times the total profits of the D.C. institutions that operated in the black.
On the positive side, net income at both Washington Federal Savings and Loan and OBA Federal Savings & Loan soared, while Columbia First Federal Savings and Loan and Independence Federal Savings Bank returned to profitability.
Although the overall picture was better in Virginia and Maryland, results varied widely among institutions. Some doubled their profits while others sank into insolvency. There were a number of supervisory mergers of failing institutions, and more appear to be forthcoming. The trend suggests a continuing consolidation of the industry.
Last year was characterized by lower interest rates but also some heavy loan and real estate investment losses. It was the year of the Maryland S&L crisis, although the nine months earnings reports of federally insured S&Ls were not directly affected.
At the end of the third quarter, the average ratio of net worth to liabilities -- a measure of the institution's capital or cushion to absorb losses -- was 4.4 percent nationally. Maryland's thrifts matched that and Virginia's exceeded it with a 5.17 average. However, the District's thrifts were far behind, with 1.29 percent regulatory net worth. Maryland thrifts that had been insured by the state's defunct Maryland Savings Share Insurance Corp. were required to have 5 percent net worth in order to get federal insurance last year.
Currently, 3 percent is the statutory minimum for financial soundness, but the Federal Savings and Loan Insurance Corp., which insures deposits at federal S&Ls, has a severe shortage of funds to assist ailing thrifts, and tends to let them continue to operate unless they have negative net worth. At least five area thrifts had negative net worths -- or an excess of liabilities over assets -- at the end of the third quarter.
The thrifts in the accompanying chart represent all of those with headquarters in the District, and those headquartered in nearby Maryland and Virginia, plus other Maryland and Virginia institutions that have assets in excess of $100 million. In several cases, partial results are given because the savings institution was merged out of existence during the period.
Three former MSSIC thrifts that gained federal insurance before June 1 appear on the list for the first time: Chevy Chase, United Savings and St. Casimirs savings and loans. Results for the others are not yet available.
In addition to regulatory net worth, the chart also shows a net-worth ratio according to generally accepted accounting principles (GAAP). This is the standard used by most businesses and it disallows a number of items regulators use to bolster the bottom lines under their own system of accounting. Under GAAP accounting, 14 of the thrifts listed are insolvent, that is, their liabilities exceed their assets.
More would be insolvent if goodwill -- an accounting term for intangible assets gained in the acquisition of another institution -- were eliminated and net worth represented the market value of assets. Last year the outgoing head of FSLIC, H. Brent Beesley, told Congress that both RAP and GAAP accounting should be supplanted by market value. President Reagan's Council of Economic Advisers recently called for revisions of regulatory accounting and added that insolvent institutions should be closed or recapitalized.
The first three quarters of 1985 for District thrifts showed record losses due to National Permanent's situation. In September, the savings bank was obliged to write off more than $40 million in goodwill it derived from its 1981 merger with failing Eastern Liberty S&L. That left National Permanent with a negative net worth of $46 million and losses for the nine months amounting to $52.5 million.
It has, however, negotiated for $51.8 million in Income Capital Certificates or interest-bearing notes from FSLIC, bringing its net worth at the end of the year to the grand total of $1,000. While National Permanent is still losing money on operations, negotiations on its future continue.
Capital City Federal, which appears on the chart for one quarter, was merged thereafter with what is now Meritor Savings Bank.
Washington Federal showed a 75 percent increase in earnings, which its president William Sinclair attributed to his company's expanding mortgage banking operations, which now account for more than half of its profits. Washington Federal is also moving heavily into commercial construction loans.
Independence, a minority owned thrift that had been losing money, staged a turnaround in June when it raised $3 million in capital through a public stock offering. President William B. Fitzgerald said Independence hoped to retain its profitability by making adjustable-rate loans to hold in its portfolio while selling off fixed-rate loans to investors.
Fitzgerald said Independence would explore possible expansion into Maryland or Virginia this year. While he applauded the City Council's decision to let money-center banks into the District, he admitted that the requirement that they make loans in blighted areas might have a negative impact on Independence's rate of growth. Yet he insisted that his profits were secondary to the overall betterment of the region.
Of the score of thrifts tracked by The Washington Post for the last two years, Standard Federal S&L of Gaithersburg showed the greatest increase in nine-month earnings, 106 percent. It showed a very healthy 1.5 percent return on assets last year. The profits, according to president Marvin Lang, sprang from a decrease in Standard's cost of funds, expense cutting, and an increase in fee income. Standard, which makes over $1 billion a year in loans, is one of the country's largest mortgage bankers.
At the other extreme is First Federal of Hagerstown with a net loss of $18 million. Chairman Alfred Bendell said his thrift had been required to make additional loan loss reserves after the value of development construction loans in Maryland, Texas, California and elsewhere was written down. First Federal is now involved in supervisory merger arrangements which Bendell expects to be announced shortly.