California thrift takes off on securities buying spree.

Stockton Savings Bank is stretching its wings after being grounded for five years.

The $1.2 billion thrift is on pace to grow 20% this year at its current rate. It grew just 8% in the five years prior to 1994.

Seeking to deal with a shrinking margin and feeling comfortable with using its capital for the first time since 1989, Stockton Savings is buying mortgagebacked securities at a healthy clip with a bundle of new deposits and borrowings.

While relatively little of the thrift's growth is core growth in deposits and loans, Stockton Savings is one of the few California S&Ls to grow without acquiring deposits of their fallen West Coast brethren.

"They need to grow the institution to improve and increase the value of the company," said Joseph Jolson, who follows the company for Montgomery Securities in San Francisco.

In 1989, Stockton Savings was a diversified institution with a good-sized stake in developing real estate in northern California. The 1989 thrift reform law changed all that, and Stockton Savings retrenched while it worked through loans and investments made taboo by the law.

Last year the thrift's holding company, California Financial, earned a record $9.4 million on the strength of the refinancing wave and the favorable interest rate environment.

But in its recently released second-quarter numbers, the company said it earned $1.35 million, down from $2.5 million a year earlier. The reason, according to company reports, was a significant decrease in the interest margin, a situation faced by many thrifts in the 11 th Federal Home Loan Bank district.

To deal with the problem, Stockton Savings unleashed its capital and began to grow, buying mortgage-backed securities with a combination of borrowings and a $33 million increase in mostly brokered deposits.

"We wanted to grow in short order so we did it with borrowed funds and brokered deposits,"said David K. Rea. "We're also looking for some internal growth from a new office in Fresno. All together, though, loan demand is still very weak here. It was just that we got to the point where our capital would support some growth."

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