First California in the Red After Write-Off of $47 Million; S&L; Seeks ‘Stronger Partner’

Directors of First California Savings Bank of Orange on Monday unanimously approved a $47-million asset write-off, a move that puts the troubled savings and loan $38.3 million in the red and could lead to a merger with another institution.

The write-off “puts us in the position of looking for a stronger partner,” said one of First California’s top officials. He stressed, however, that depositors at the thrift’s two branches are fully protected and will have no problems with their accounts.

In addition to the write-off, First California President Gilbert Fuentes confirmed that the accounting firm of Peat Marwick Mitchell & Co. had issued a qualified report on the institution’s year-end audit because of its generally poor financial condition as of March 31.

Founded in San Fernando in 1970 as Camino Real Savings Bank, the S&L; was one of the state’s first Latino owned and managed institutions. It encountered problems when the real estate development projects it supported in the early 1980s soured.

The institution nearly closed in 1984 under the pressure of mounting losses but was rescued the following year by Orange County real estate developer Mervyn A. Phelan, who moved its corporate offices from San Fernando to Orange. The S&L; has branches in San Fernando and the City of Commerce.

Despite the move, the S&L;’s financial problems have mounted. It posted losses of more than $7.5 million in the last three years, including $1.6 million during the fiscal year ended March 31. It recorded a $2.4-million net loss in the first quarter of its 1988 fiscal year.

In addition, Fuentes said the FBI has been investigating the S&L;’s business dealings before 1985, including reports of inflated appraisals, inadequate credit checks and other questionable lending practices that left the S&L; with $69 million of foreclosed real estate in 1985.

“This is a very troubled institution that we are trying to make as good as we can,” said Fuentes, who assumed the top post a year ago. “But I can’t comment on what may lie ahead for us.”

Merger May Help

Nevertheless, Fuentes conceded that other institutions facing similar financial problems have been paired with stronger S&Ls; by federal and state regulators.

William Davis, assistant director of the state’s Savings and Loan Department, declined to comment on the agency’s activity at First California.

Fuentes said the $47-million write-off basically removed the “good will,” or intangible asset value, carried on the institution’s books. Until that action, which was recommended by the S&L;’s auditors to provide a more realistic indication of its value, First California had been reducing its good will by about $2 million annually.

First California, which was called Camino Real Savings Bank until February, had $274.7 million in assets and $8.7 million in regulatory capital at the end of March.

The write-off leaves the S&L; $38.3 million in the red, although it expects to see $7 million more in new capital soon.

An expected sale of four properties should bring in more than $5 million, Fuentes said, The S&L;’s owner, Phelan, must still contribute $2 million to the capital base as part of his purchase agreement in 1985.