It's been a long few years for California's unique thrift and loan industry.

Seven years ago, 46 thrift and loans plied the state's banking markets, offering niche financing services to businesses and other nonmortgage borrowers. Similar to traditional savings and loans, these industrial loan companies were designed to focus on one area and do it well.

Then came the recession.

Today, the field has been whittled down to only 28 thrift and loans. And although combined assets have grown steadily-from less than $5 billion in 1990 to $6.3 billion at Dec. 31-about $2.7 billion, or 43%, of the total is held by just two institutions.

Although the industry may appear to be on its last legs, executives insist that thrift and loans have served a vital societal function for decades and will endure.

"The industry, no matter how small it is, has certainly proven to fit a little niche," said Murray L. Zoota, president and chief executive of Fremont Investment and Loan in Anaheim. "We don't want to be anything else. You have a better chance to have quality because you do one thing well, as opposed to being all things to all people. That's what's different about the thrift and loan industry."

In a state well-known for unique institutions and inventive solutions to social problems, the thrift and loan companies are just one among many oddities.

Founded under California's 1917 Industrial Loan Act, the institutions were designed to serve consumers and small businesses that could not obtain credit from banks.

Rather than trying to offer general banking services in competition with commercial banks, each industrial loan company stayed local and sought a niche such as jumbo mortgages, commercial real estate lending, auto finance, or equipment leasing. Further distinguishing them, the institutions were barred from offering checking accounts and generally offered higher yields on deposits.

But like traditional thrifts, they found the competitive environment growing tougher and profits growing thinner. Many of the institutions were hammered during the 1990s recession along with the rest of the industry, and about 14 either failed or were liquidated.

That has forced many of the larger institutions to diversify product offerings and become more banklike. Some, like Fremont, even changed names to drop the word "thrift," after passage three years ago of a law allowing them to do so. And others are expected to adopt the word "bank" beginning July 1.

What had been the largest thrift and loan plans to convert to a commercial bank charter-and several others have made or plan to make the same move, also being considered by many traditional savings and loans. The last new thrift and loan was chartered in August 1991.

"I see the industrial loan charter disappearing," said Conrad Hewitt, superintendent of the state banking department. On July 1, thrift and loans, now supervised by the department of corporations, will come under a new Department of Financial Institutions that will also regulate banks, thrifts, and credit unions.

"Thrifts operate in a fairly narrow business operation," Mr. Hewitt said. "They're going to have to become a commercial bank one way or another."

Despite the changes, however, thrift and loan executives remain convinced there is a place for their charter, and they suggested that other institutions may even want to consider it. Executives also noted that the industry's average capital level was 7.87% at Sept. 30, while returns on assets and equity were 1.24% and 13.71%, respectively.

"It's not what kind of business you are, it's what kind of business line you're in and what kind of charter will help you do that best," said Roger Duerksen, executive director of the California Association of Thrift and Loan Companies. "Depending on what they want to do, this charter may serve their needs best."

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