Because of incorrect data given to the Office of Thrift Supervision, Rushmore Federal Savings Bank's tangible capital ratio was misstated in yesterday's Washington Business section. Its percentage of tangible capital -- the amount of cash that thrift owners must provide to protect against bad loans -- was 9.02 percent on March 31. (Published 9/11/90)

When President Bush signed the savings and loan reform bill into law last year, S&Ls in Maryland, Virginia and the District were thought to be among the strongest in the nation. But in just one year, that picture has changed dramatically, according to recently released statistics that show the health of S&Ls in the region at its lowest point since the Maryland thrift crisis of 1985.

Based on an analysis of performance through March, a dozen S&Ls in the region are operating dangerously close to insolvency and another dozen S&Ls, including some of the largest local thrifts, are having trouble staying profitable and meeting the new standards set by the S&L legislation. Analysts said the situation has worsened as 1990 has progressed.

The Office of Thrift Supervision (OTS) has said publicly that seven thrifts in Virginia and six in Maryland have been targeted for government takeover. But the OTS has refused to identify those thrifts by name, adding to the climate of uncertainty.

Depositors in all thrifts are protected by the federal government up to $100,000 per account, and more than 100 S&Ls in the region are healthy.

In addition, the overall health of S&LS is much better here than in many other parts of the country.

Still, in an area that so far has managed to avoid most of the fallout from the national thrift crisis, the rapid deterioration of the health of area thrifts is both disturbing and surprising, even to industry experts.

"When I looked at Washington a year ago, I thought it was going to emerge relatively unscathed from the thrift problems," said William Ferguson, head of the firm that analyzes thrift data for the federal government. "Obviously, I was wrong ... Ya'll are starting to look just like Texas," which is where the S&L debacle began.

According to industry officials and analysts, the increasing problems of area thrifts are largely the result of the slowdown in the local real estate market and the sluggish economy. Those two factors also are affecting the health of the area's banks, which remain in better overall financial condition than the thrifts, but have been hit hard by a rapid rise in bad real estate loans.

"You would think that thrifts in other parts of the country would have learned a good lesson from the real estate recession of the Southwest," Ferguson said. "But I guess in many cases, the die was already cast for rapid real estate expansion ... And suddenly, we've found that real estate problems aren't just limited to Texas, they're creeping up everywhere."

In addition to hurting the profitability of area thrifts, the rise in problem real estate loans has made it difficult for them to find investors to provide fresh capital -- the cash that owners must supply to protect against bad loans and an important measure of an S&L's well-being.

In the past, S&Ls did not need to have a significant amount of capital to be considered healthy. Moreover, thrifts were allowed to be more liberal in deciding what items on their books could be counted as capital, and often included the value of "goodwill," which among other things reflects the value of a thrift's good name.

The passage of the Financial Institutions Reform, Recovery and Enforcement Act last year toughened many of the capital requirements. S&L owners now must put up $1.50 of their own money for every $100 in investments they make with depositors' money, and goodwill and similar items can no longer be counted as capital. The law also requires that capital grow to 3 percent of thrift assets by 1995.

First-quarter results compiled by Sheshunoff Information Services Inc. and included in the accompanying charts show seven thrifts in Virginia and five in Maryland operating at capital levels below the federally mandated minimum 1.5 percent requirement. Executives interviewed last week confirmed that nearly all of these institutions lack the cash they need to operate soundly.

Among the ailing thrifts operating below the federal capital requirement as of March 31 were some of Virginia's largest institutions, including Tysons Corner-based Trustbank Savings F.S.B., Charter Federal Savings Bank of Bristol, CorEast Savings Bank of Richmond and Heritage Savings Bank F.S.B. of Richmond. According to the government, the others in Virginia were Jefferson Savings Bank of Warrenton, Va., and Home Savings Bank F.S.B. and Sentry Federal Savings Bank, both of Norfolk. An executive of Home Savings Bank said the government is wrong and that his thrift is in compliance.

Maryland's S&Ls below the capital minimum as of March 31 included two large Baltimore-based institutions, Fairview Federal Savings & Loan Association and Augusta Federal Savings Bank, which operates a branch in Annapolis. The others were Royal Oak Federal Savings & Loan Association of Randallstown, and Garibaldi Federal Savings Bank and Irvington Federal Savings & Loan Association, both of Baltimore. An executive of Garibaldi said the thrift recently raised the required capital.

Combined, the troubled institutions hold $5.8 billion in assets and operate more than 100 branches throughout Maryland and Virginia, including 42 in the Washington area. It is unclear what ultimately may happen to these thrifts. Some may raise additional capital and survive as independent institutions, while others may be taken over by the federal government or merged.

For example, Jefferson Savings Bank of Warrenton is trying to merge with NVR Federal Savings Bank in McLean, to improve its financial position. Other thrifts like Augusta Federal have submitted business plans to the OTS outlining how they intend to raise the cash themselves.

Many of these S&Ls already are operating under the close scrutiny of the OTS, which replaced the Federal Home Loan Bank Board as the industry's overseer. The agency has prevented the troubled thrifts from expanding and has forced many to make drastic changes in their business practices, such as cutting high interest rates that attracted deposits or eliminating commercial real estate investment.

At least a dozen more area S&Ls fall into another category of concern: They meet the 1.5 percent capital requirement but would fall short of 1995's 3 percent capital mandate.

Included in this group is Perpetual Savings Bank, the area's largest savings and loan association, which already is operating under a special agreement with the OTS.

Other local institutions in this category are Chevy Chase Federal Savings Bank, Standard Federal Savings Bank of Gaithersburg, John Hanson Savings Bank F.S.B. of Beltsville, Equitable Federal Savings Bank of Wheaton and Republic Federal Savings Bank of Rockville.

Executives of many of these thrifts have gone to great lengths in the past few months to boost their capital positions.

Many of them have reduced their staffs, cut lines of businesses, stopped making new loans and sold valuable assets. All of them said they believed they would be able to meet the 3 percent requirement by the 1995 deadline.

Thrifts can meet capital standards by attracting new investors or by shrinking in size so they do not need as big a capital cushion.

To become smaller, they can sell company-owned real estate, securities or branches or other operations -- and many are doing just that.

But in today's environment, where hundreds of S&Ls nationwide are trying to raise capital, the competition to sell assets has created a buyers market, and many thrifts aren't raising as much cash as they would like.

Analysts said the future of area S&Ls depends largely on the local economy. Thrift executives agreed.

"The big factor in thrift problems in the area is the slowing economy," said David Hynes, head of Equitable Federal Savings Bank.

But Hynes and other executives said the S&L bill has exacerbated the situation.

"We're going to make it," he said. "But there are a lot of healthy, conservative thrifts out there that are being forced to recognize greater losses because of {the S&L bill.} That legislation could have been more helpful, but it was short-sighted."

Next week: A review of area banks' health