S&Ls;’ Quarterly Earnings Plummet : Thrifts: Rising interest rates blamed for slump to $45.7 million from last year’s $74.6 million.

Orange County’s savings and loans, hurt by rising interest rates earlier this year, earned $45.7 million for the second quarter, or about a third less than the $74.6 million that the local thrifts earned in last year’s second quarter.

The 16 S&Ls; based in the county also had earned a greater amount in the first three months this year--$66.2 million, according to figures released by the U.S. Office of Thrift Supervision.

“It’s mainly a reflection of the interest rate market,” said Stephen W. Prough, president of Downey Savings & Loan in Newport Beach. “You would expect that companies that are sensitive to interest rates would see a tightening of their profit margin.”

The higher interest rates earlier this year cooled off the overheated market for home loan refinancings, but thrifts began seeing an increase in dormant home loans.

Mortgage bankers were hurt in the process, but S&Ls; began making more adjustable-rate loans for home purchases, typically offering low introductory rates for the first three months. The ability of adjustable-rate mortgage rates to fluctuate with changing interest rates is believed to help thrifts better manage their profit margins.

“Because we’re seeing higher volumes of ARM loans, those lower introductory rates are showing up as lower income in second-quarter and probably third-quarter earnings,” Prough said. “But long term, making ARM loans is the right decision for a lot of institutions.”

The local S&L; industry was helped by the recovering economy, he said, because real estate values have stabilized.

Only seven of the county’s S&Ls; were profitable, and they were led by the two largest--American Savings Bank in Irvine and Household Bank in Newport Beach.

American, with $17.3 billion in loans and other assets, earned $21.6 million. Household, with $8.6 billion in assets, earned $37.9 million. Downey, the third-largest with $3.7 billion in assets, reported the third-highest profit, $6.5 million.

Nine county thrifts lost money, led by troubled Union Federal Savings Bank, which lost $9.8 million. Plaza Home Mortgage Bank in Santa Ana, a mortgage banking operation hurt by the rise in rates, lost $8.7 million. Last month, Plaza’s parent company agreed to sell the thrift in a $120-million deal.

Guardian Savings & Loan in Huntington Beach, which failed and was sold in July by regulators, lost $4.8 million.