Scott Brawly, the new chief executive of Los Angeles-based Hawthorne Savings Bank, has to deal with more than $200 million of nonperforming assets, the weak Southern California economy, and the 33-year legacy of his predecessor.
He's just thankful he doesn't have to deal with a capital problem.
"Thrifts either have plenty of capital and no problem assets, or no capital and lots of problem assets," Mr. Brawly said. "Not-withstanding our asset quality problems, we have an enviable capital and reserve base."
Mr. Brawly, 39, took over as chief executive of $999 million-asset Hawthorne on July 14. It's a job that for 33 years was held by Vernon D. Herbst, who opted for retirement after a damning federal examination in which the Office of Thrift Supervision threatened to fine him and his board if changes weren't made in Hawthorne's management and internal controls.
Hawthorne has had a series of run-ins with the OTS since 1990. In December of that year, the agency directed the thrift to cease origination of non-owner-occupied single-family homes because Hawthorne's problem construction loans soared that year.
In February 1991, Hawthorne consented to a cease and desist order calling for it to develop a "comprehensive regulatory compliance strategy."
In December 1992, the OTS ordered Hawthorne to limit its loan originations to owner-occupied single-family permanent loans only. But last year, the OTS told Hawthorne's board that it had failed to comply with the order. In March 1992, the OTS assessed a $20,000 penalty against the thrift.
The problems with the regulators came to a head in March as the OTS completed an examination. In its March 5 examination report, the OTS said "the future viability [of Hawthorne] was threatened by perceived inadequacies in the board of directors and management, deteriorated asset quality, and moderate-to-high interest rate risk."
The report called on Hawthorne to strengthen its management and improve its internal controls. The OTS indicated that it would consider assessing money penalties against each of the directors.
First Loss Ever
Because of the examination, Hawthorne's holding company posted a $22.1 million loss in 1992, its first-ever annual loss. Herbst retired March 31.
Though Hawthorne's capital remains strong, with risk-based capital equaling 11.27%, nonperforming assets remained at an alarmingly high $211.9 million on March 31, or 10.9% of total assets. More than $100 million of nonperformers are foreclosures. The thrift rebounded with a $1.6 million profit in the March quarter.
Mr. Brawly, a former executive vice president of Fidelity Federal Bank FSB and a former chief executive of Valley Federal Savings and Loan, said he plans to put in new senior executives for most operating areas.
"We'll be staffing a special asset group with seasoned professionals," Mr. Brawly added. "That's something this thrift hasn't had until now."
He said the board of directors hasn't changed since he came on board - yet.
"It's too early to evaluate how the board will change," he said.