Westcorp Posts 62% Drop in 3rd-Quarter Profits : Savings and loans: The Orange thrift, reacting to the new S&L; regulations, lowered the value its high-yield junk bonds to what they would be worth if sold today.

The new federal financial institutions law has had its first major impact on the earnings of an Orange County savings and loan as Westcorp, a holding company for Western Financial Savings Bank in Orange, Tuesday posted a 62% drop in third-quarter net income.

The company earned $1.3 million for the quarter ended Sept. 30, contrasted with $3.4 million for the period in 1988. Quarterly revenue rose 40%, to $84.3 million this year from $60.2 million in 1988.

The lower income was a direct result of the company’s decision to lower the value of its high-yield “junk” bonds to what they would be worth if sold today, said Stephen W. Prough, Westcorp president. Prough said that although the law does not require them to take that action, Westcorp thought it prudent to do so.

The writedown was taken even though the company believed it had already reserved sufficient funds to guard against possible losses, Prough said. Westcorp would have posted quarterly net income of $4.2 million without the writedown, he said.

The law, which bails out the S&L; deposit insurance system, requires that thrifts sell off their junk-bond portfolios within five years or move them to separately capitalized affiliates that do not use government-insured deposits.

Thirty S&Ls; nationwide had more than 90% of the $14.4 billion in junk bonds held by thrifts at the end of March. Eight California thrifts, Western Financial among them, have half the nationwide total.

Western Financial’s junk bond holdings were reported at $99 million, or 3.8% of the thrift’s $2.6 billion in assets, at the end of March.

“They’re such a small part of our portfolio, and the bonds we have we like to consider as the cream of the crap,” said Jonathan Moore, vice president of marketing for the thrift. “We’ve watched them closely and done well.”

The markdown also affected the nine-month earnings figure, which fell 33% to $7 million from $10.5 million for the period in 1988. Revenue for the period climbed 41% to $233 million this year from $165.8 million last year.

Total assets at the end of September were $2.8 billion, up 12% from $2.5 billion a year earlier.

WESTCORP PERFORMANCE (In millions of dollars)

3rd Qtr. 3rd Qtr. 9 months 9 months 1989 1988 1989 1988 Revenue $84.3 $60.2 $233.0 $165.8 Net Income 1.3 3.4 7.0 10.5

Source: Westcorp