Wise borrowing, sound lending keys to success


September 08, 1991|By Peter H. Frank

Forget the modern-day image of the thrift industry -- a cascading tale of bad real estate loans and fraudulent deals, of billion-dollar failures and government bailouts, of jailed executives and fresh indictments.

Consider this instead: two Maryland thrifts that are simply perfect.

Cowenton Federal Savings and Loan Association in White Marsh and First Security Federal Savings Bank in Chevy Chase both have the right to carry that banner, according to the latest ratings by IDC Financial Publishing Inc.

Both thrifts, judged on three dozen financial ratios, attained the top ratings for the three-month period that ended March 31.

The two small thrifts could barely raise a ripple within Maryland's $20 billion savings and loan industry. But they stand as a signpost for what many of the state's largest banks and thrifts are working to rediscover -- the industry's bedrock of making money by simply borrowing and lending well.

"We don't do very much speculative construction lending. It's kind of risky," explained Cowenton's president, Terry L. Neifeld. "We concentrate on home lending because that's what the S&L industry has done from the get-go."

The similarities between the two small thrifts are unmistakable. Both are run by executives who are happiest when their companies are safest. Neither institution is publicly traded, worried about stockholders and stock prices. And both have stuck with the traditional role of providing home mortgages, avoiding riskier -- and potentially more profitable -- commercial real estate loans.

The differences between them and most of the rest of the industry are equally unmistakable. More than 6 percent of the $20 billion in assets held by the thrift industry in Maryland was listed as troubled at the end of the first quarter, according to IDC's figures. Cowenton and First Security combined have one bad loan.

While the average IDC rating for a thrift in Maryland was 124, Cowenton and First Security hit the top possible score of 300. A third savings and loan, Custom Savings Bank FSB, also obtained a 300 rating.

The Pikesville-based thrift has a very different operating strategy than its two smaller cousins. With assets of $318 million at March 31, most of Custom's funds are invested in government securities backed by mortgages. Only about $700,000 of permanent home mortgages remain on its books. Efforts to reach Custom executives to learn details of the thrift's strategy were unsuccessful.

Few institutions are able to maintain a top score consistently for years, but executives at Cowenton and First Security are not worried. Their goal: to continue being boring.

2& "If you look at us a year from now

or two years from now," said Edwin Rector, president of First Security, "we'll be doing the same thing."


Cowenton is not a large operation.

* The post office, located across the street, keeps returning mail sent to Cowenton's street address because the thrift has no mailbox for the carrier's rural route. If it did, it would be in the post office's parking lot.

* It doesn't have a fax machine.

* It did get a computer, but that meant the conference table had to be moved into the lobby.

* And its one office is in a flood plain, which for years made it too expensive to install an indoor toilet. The problem was solved two years ago, however, and Cowenton's three employees stopped using the bathroom at the fire station next door.

Cowenton has a simple purity. Although the tools of the trade have changed drastically since Cowenton was founded in 1888 -- or even since Mr. Neifeld's father ran the thrift in the 1940s -- its style of business has not. "Rapid growth is not healthy," said Mr. Neifeld, 43.

Mr. Neifeld, his vice president, who also serves as the thrift's chief lending officer, and the company's secretary-treasurer -- Cowenton's entire staff -- double as the tellers. With only 1,200 accounts -- representing about 600 families -- lines are rarely a problem.

"Basically, they're savers," Mr. Neifeld said of the customers, who, under the thrift's charter as a mutual company, are also the owners. "They don't come in that often."

Cowenton has $20.3 million in assets and its 10 percent capital-to-assets ratio places the company well above levels required by federal regulators. Roughly one-fourth of its money is in cash or liquid assets, one-fourth is invested in government securities and one-half is lent out as home mortgages, according to data from the Office of Thrift Supervision.

There are no business loans. There are no consumer loans. And, most important, there are no bad loans.

In the past few years, Cowenton has been flush with cash, as interest rates fell and customers rushed to refinance mortgages. But new home sales slumped, and Cowenton has had a difficult lTC time finding new homebuyers who want mortgages.

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