An article in Washington Business Monday incorrectly reported a financial figure for a District savings and loan. The net worth of Washington Federal Savings and Loan is $47 million. (Published 8/27/87)

The Washington area's savings and loan institutions are generally safe, sound and healthy -- though not as robust as they should be, given the strength of the local market, according to securities analysts who track the local S&Ls.

"The S&Ls here are strong, they're very strong as a group," said Emanual Friedman, senior vice president of Johnston, Lemon & Co. "A couple of them should be doing tremendously, and they're just muddling through a great market. That reflects on management. But we're talking glitches, not real problems."

The D.C. market is so strong that even losers are winners. That was proved recently by the fierce fight between oil billionaire Gordon Getty and banking behemoth Citicorp over a money-losing, insolvent District S&L, the former National Permanent Bank. The strength also was proved by other major banks and S&Ls from New York and Pennsylvania, including Chase Manhattan Corp. and Meritor Financial Goup, that recently have snapped up ailing S&Ls in Maryland and the District.

But in the midst of a nationwide S&L crisis that two years ago overwhelmed the Maryland state deposit insurance fund and at the end of 1986 put the federal deposit insurance fund more than $6 billion in the red, Washington-area institutions are feeling the pull and tug of deregulation and how to cope in one of the strongest -- and most competititive -- financial service markets in the country.

"The fact is, the S&L industry has not yet attracted the caliber management that banks have," said one analyst at Alex Brown & Sons Inc. who asked that his name not be used for fear of offending clients.

Good management and quality rank-and-file workers are getting harder to come by, though, as the area attracts more new banks and other financial institutions, which compete with each other for new hires. The pinch of overbanking is being felt by many area players.

"It's a heavily banked market that will require resourcefulness for institutions to do well," said Thomas J. Owen, chairman and chief executive of Perpetual Savings Bank, one of the more innovative and healthy institutions in the area, and certainly the biggest one headquartered here.

Increased competitiveness will continue to pressure S&Ls to take action to improve lackluster results, even in a market as strong as the Washington area. They will be forced to find new sources of capital -- and new places to invest that capital -- to boost earnings and net worth.

Net worth is assets minus liabilities. The ratio of net worth to liabilities measures an institution's cushion against possible losses.

Many mutual S&Ls, which are owned by depositors, are raising money by converting to stock institutions, which are owned by shareholders.

Many institutions are aggressively buying other S&Ls and acting more and more like commercial banks or even one-stop financial service companies, which offer everything from home loans to insurance to credit cards. Meritor Savings Bank, Citicorp Savings and Perpetual have gone this route.

Other institutions are sticking closer to the S&L industry's earlier mission of providing a safe place for putting long-term savings and a good place to get home loans at competitive rates.

OBA Federal, the smallest but perhaps strongest S&L based in the District, has found great success in this strategy.

"I strongly feel that the American public really needs the classic S&L," said OBA President W.B. Tascher.

Driving the change are the same forces that are fundamentally restructuring financial service markets everywhere: improved technology, increased demand by consumers who have become more sophisticated and heated competition from relative newcomers to the home loan market, such as Sears Roebuck & Co. and Merrill Lynch & Co.

S&Ls do have an edge in that many of the federal and state regulations governing them are less strict than those governing banks. But that fact has cut both ways. For some S&Ls, more lenient regulation provided opportunity to gain market share by selling consumers a wider range of services. For others it has been a way to get into risky practices that would never have been tolerated by commercial banking regulators.

Here are some highlights of several changes taking place among area institutions:

Maryland Metropolitan Federal S&L signed an agreement in June to be bought by Baltimore Bancorp and converted to a commercial bank. The sale is expected to be completed by Sept. 1.

Baltimore Federal Financial has agreed to convert to a stock institution and be purchased in a private placement by Home Shopping Network Inc. by Sept. 30.

The purchase is expected to boost the institution's net worth ratios.

Baltimore Federal officials say that their problems have been spread problems, meaning that they have paid more to attract deposits than they have earned on money they loan out.

The company also has a large deferred loan loss of $83.8 million, which will continue to be amortized and taken out of the bottom line, officials said.

Standard Federal S&L has been trying to raise money for years to boost its net worth ratios, according to local analysts.

Standard Federal Senior Vice President James Pavlonnis said that despite the S&L's low net worth ratios, the institution has been in compliance with federal regulations.

He declined to provide the S&L's net income for the 12 months ending 1986.

First Federal S&L is considering a stock conversion to raise more capital to boost its net worth ratios. Analysts say the institution is under supervision by federal S&L regulators, but First Federal executives described that oversight as "nothing official."

Annapolis Federal S&L converted to a stock institution Dec. 31, raising enough capital to boost its net worth ratio using generally accepted accounting principles (GAAP) to 3.5 percent of liabilities, said Gilbert Hardesty, president of the S&L. He said that for the first six months of 1987, the S&L earned $2.6 million.

John Hanson Savings Bank estimates it lost as much as $2.1 million in the fourth quarter of its fiscal year, which ended June 30. Despite the loss, which the S&L attributed in part to losses on securities trading, the S&L said it expects to earn $2.3 million for the year.

Virginia Metropolitan Federal converted to a stock institution in February. It raised $1.5 million in the stock offering, which as of April 30 boosted its GAAP net worth to 4.3 percent, its officials said.

First Federal of Northern Virginia in May changed its name to Fedstar because of its intention to become more competitive in the District and Maryland.

The S&L is trying to raise capital by converting to a stock institution, a process Fedstar executives say they hope will be completed by Sept. 15 and will raise $12.5 million.

If successful, the offering would boost the S&L's GAAP net worth ratio to 3 percent. The S&L's executives say they hope to further boost that ratio to 6 percent by 1992.

Perpetual Savings Bank is laying plans to increase its already solid presence in the Maryland, D.C. and Virginia markets though acquisitions.

The company is especially interested in buying institutions in Baltimore, Annapolis and Richmond.

Analysts say that although Perpetual is healthy, they think the S&L's earnings should be higher. Perpetual Chairman Owen responds by saying that the S&L has undertaken several investments that initially may depress profits but that in the long run will help the institution earn money.

Perpetual has expanded by buying or building 12 new branches in the past 12 months, Owen said, and has increased its investment in real estate. Both will take time to pay off, he said.

McLean S&L had a substantial loss in 1986 because the S&L was forced to increase its reserves against potential loan losses, particularly risky loans it made in the economically depressed states of Texas and Oklahoma, said chief financial officer Joanne Bryant.

She said that she could not say if the institution was profitable in the first six months of this year because the company audit for that period is not yet complete.

The S&L is a closely held stock institution, with about 400 shareholders, she said.

District Citicorp Savings, which bought the former National Permanent Bank nearly one year ago, expects the institution to continue to lose money in the near future. But Citicorp -- whose parent is the nation's largest bank-holding company -- is in the District for the long haul and would not have fought so hard to buy the S&L if it did not think it would make money in the long run.

Federal restrictions barring Citicorp from selling through the S&L any of its commercial banking services may soon be lifted, which would give the institution a competitive advantage in the District.

Home Federal S&L hopes to go public this fall, said Elwyn G. Raiden, president, and raise enough money to give the S&L a GAAP net worth ratio of 4 percent.

Independence Federal Savings Bank, which went public two years ago, says it will have no trouble meeting new federal capital rules that require healthy S&Ls to boost net worth ratios to 6 percent during the next few years.

Columbia First Federal Savings and Loan Association is planning to move its headquarters to Virginia this fall to save on taxes. The move will help boost the S&L's bottom line, which analysts think is sluggish given the vibrancy of the local home-loan market. The move will have no effect on the S&Ls branch operations, which will continue uninterrupted.

Washington Federal Savings and Loan went public recently, raising $27.9 million. The capital infusion brings the S&L's net worth to $1 billion and its GAAP net worth ratio to 5 percent, said Chairman William F. Sinclair.