LOS ANGELES -- Ray Martin is like the guy who has been to all his buddies' funerals and keeps whistling past the graveyard.

Coast Savings Financial Inc.'s chairman and chief executive is one of the few top managers of a midsize California savings institution to survive the industry cataclysm.

Many of Coast's peers failed. Of those that pulled through, all but a handful gave their chief the boot.

Mr. Martin kept his job because he anticipated the savings-and-loan crisis years before it struck full blast and took early action to cushion the blows.

Played It Safe

When other thrift magnates were chasing deals and bragging about the money they were making, Coast's chief stopped making risky loans. He walked away from commercial real estate first, and shortly after that from apartment loans and junk bonds.

Since the start of the decade, almost all of Coast's loans have been unexciting but safer single-family mortgages.

"Management did all the right things a lot earlier than their more spectacular brethren," said James M. Marks, a San Francisco-based analyst with Sutro & Co.

Mr. Martin explains that it was warning signs from places like Texas, where some Coast credits went sour, which made him fear that California real estate was headed for a tumble.

"It was 1987 when I saw the dark clouds coming," the 58-year-old Mr. Martin recalled during an interview at his Los Angeles headquarters. "If we had continued aggressively in commercial real estate, I probably would be with some of my friends out on the golf course."

Rough Ride

Thanks to Mr. Martin's prudence, Coast weathered California's slump and the harsh regulatory regime created by the 1989 thrift bailout law.

To be sure, Coast had a rough ride. At its low point in 1990, after regulators forced the thrift to add $60 million to loan-loss reserves, tangible capital represented just 1.52% of assets, only 0.02% above the regulatory minimum.

Many investors wrote Coast off as bait for the Resolution Trust Corp., the federal thrift liquidation agency. As a result, Coast's stock plunged to a low of $1.625 per share.

Slimmed Down

The thrift was forced to shrink by nearly a third to its present size of $8 billion of assets in order to rebuild its capital ratios. To get there, it sold a valuable network of 19 San Diego-area branches to California rival H.F. Ahmanson & Co.

Today, with tangible capital more than 5% of assets, Coast once again is well capitalized. And its credit problems are manageable, with problem loans and foreclosed property representing 2.68% of assets.

The threat of bankruptcy and federal takeover no longer hangs over the thrift. In three years, its stock price has multiplied ten-fold to about $17 per share.

Mr. Martin accomplished this without a major recapitalization. Coast's one trip to the equity market in 1992 diluted shareholders only 3.5% on a bookvalue basis.

Avoided Bulk Sales

Similarly, Coast cleansed its loan portfolio a little at a time, avoiding bulk sales at big discounts.

What is at issue is Coast's ability to produce decent rates of return. Ray Martin has enabled Coast to survive, but it is far from clear that he can make it thrive.

Unlike many of its peers, Coast has steadily made money. Since taking big writeoffs four years ago, the thrift has been profitable every quarter except for this year's March period when losses from the Northridge earthquake put it in the red.

Still, high additions to loan-loss reserves throughout California's real estate slump have kept Coast's performance anemic: between 1991 and 1993, return on assets ranged from 0.21% to 0.57%.

"We dedicated the earnings stream to taking care of problem assets," explained planning chief Mark Neal.

What's more, the thrift's net interest income and core profits are shrinking, due to rising interest rates and narrower margins. Pretax core profits, including net interest and noninterest income, equaled $21.2 million in the June quarter, 17.8% below the level in the 1993 second period.

Of course, Coast's profits will rise when the Golden State's economic recovery permits the thrift to trim its loan-loss provisions.

But adjusting for normal provision levels, core profitability works out to roughly a 0.60% return on assets. At current capital levels, that translates into a lackluster return on equity of approximately 12%.

Analysts say Coast's dilemma is typical of California thrifts which have weathered a harsh regulatory climate and four years of recession to see significantly weakened earnings power.

"To prosper a thrift either has to be very efficient, have a special geographic niche, or fully exploit its retail franchise," commented Sutro's Mr. Marks. "A thrift like Coast can muddle along and earn a subpar return."

Gloomy Outlook

Campbell K. Chaney, analyst with Dakin Securities, Corp. San Francisco, said: "The future is mediocre returns to shareholders. That's not throwing stones at Coast - that's true for almost all California thrifts."

Mr. Martin insists that the analysts are underestimating Coast's profit potential. "As our provision comes down, our core earnings will support a 15% return on equity and a 0.75% return on assets," he predicted.

It won't happen soon, he cautioned. "We see a slow recovery."

California real estate continues to be weak, he noted. While Coast is seeing a pronounced recovery in single-family mortgages, its $1.4 billion portfolio of apartment loans is still generating losses.

Long Road Seen

Mr. Martin thinks it may take as long as three years for Coast's credit quality to rebound fully and quarterly additions to reserves to return to healthy levels.

What's more, his optimism is based on a couple of assumptions: He expects assets to halt their decline and grow at a 5% annual rate by the end of the year. That, he predicted, will allow Coast to trim overhead from a relatively high 2% of assets to a more competitive 1.6%.

Mr. Martin's strategy is based on cranking up Coast's machinery for making adjustable-rate mortgages. Earlier this year the thrift centralized and retooled its credit-processing operations to support higher production levels.

"California is a huge market and we represent just 1% of the market share for mortgage-loan originations," he noted. "We are looking at being a volume lender and selling off excess production, keeping the servicing."

Record Month

In what Mr. Martin hopes is a harbinger of things to come, Coast broke its record by originating $220 million in mortgages last month. That signals the reversal of a decline in which the thrift's mortgage production fell 25% from 1991 to 1993 to an annual level just over $1 billion.

Coast is also looking to boost fee revenue from its 89 California branches by selling more deposit products, annuities and mutual funds.

Then there is the matter of Coast's goodwill lawsuit against the U.S. government, currently stayed until similar claims arc decided by a federal appeals court.

Like many savings institutions, Coast helped regulators in the 1980s by acquiring a sick thrift. The government threw in $299 million in cash to make up for the acquisition's negative net worth and promised to count that amount as capital.

Following passage of the savings and loan bailout law, the government ordered the cash contribution to be phased out of capital, prompting Coast to sue. The thrift has an unusually strong claim because, unlike some others. its agreement with the government was in the the form of a written contract.

While no one at Coast will flatly predict success in the suit, a damage award could bring a substantial windfall.

Takeover Potential Seen

All the same, what attracts many analysts to Coast is not a potential legal victory or even a possible earnings recovery. Many view the thrift as a hot consolidation play on the assumption that midsize California thrifts will become acquisition targets as business conditions in the state bounce back.

"I'm recommending Coast stock on a takeover basis," said Mr. Chaney of Dakin Securities.

Mr. Martin scoffs at such speculation, maintaining that it makes no sense to sell when Coast is still recovering and its stock trades at a 15% discount to book value. "I would be insane to even consider it," he declared.

It's obvious that being a survivor appeals to this warhorse. Pressed further about a sale, Mr. Martin grinned mischievously.

"I don't know about that," he countered. "We're going to look for [acquisition] opportunities ourselves."

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