Financial Corp. of America, continuing to reel from problems in its loan portfolio, announced Monday that it lost $38.2 million in the first quarter of 1985, bringing its combined losses in the past two quarters to about $550 million.
The results “reflect the significant drag on earnings caused by the company’s portfolio of non-earning assets,” FCA Chairman and Chief Executive William J. Popejoy said in a statement.
Irvine-based FCA, parent company of American Savings & Loan Assn., the nation’s largest S&L;, also said it has begun a program to sell its problem loans, which stood at $1.28 billion on March 31.
About $100 million of these assets are in the process of being sold, while another $500 million may be sold before the end of 1985, Popejoy said in an interview. These assets includes loans that are delinquent, in foreclosure or have been sold to other investors at below-market rates.
Financial analysts said the first-quarter loss was in line with what they had been expecting but complained that the financial statement wasn’t detailed enough. For example, FCA didn’t reveal how its losses occurred, said Jonathan Gray, analyst for Sanford C. Bernstein & Co. in New York.
Popejoy later explained in the interview that most of the losses came from operations, but he noted that $6.5 million resulted from a special assessment designed to bolster the S&L; industry’s deposit insurance fund administered by the Federal Savings & Loan Insurance Corp.
FCA said it made no additions to its own reserves for loan losses in the first quarter.
That reserve ballooned to $472 million at the end of 1984, up $422 million in just three months. The addition to reserves, which cut directly into profits, was the principal reason why FCA lost $512 million in the fourth quarter of 1984 and $591 million for the entire year.
Although FCA has stemmed its deposit problems of last summer and has identified its problem loans, it still faces major obstacles to full recovery, Gray said.
One is that its cost of funds--10.3%--is more than 1 percentage point higher than for other large California S&Ls.; That largely reflects the higher interest rates that the troubled S&L; must pay in order to attract deposits, Gray said.
The analyst also noted that FCA made only $197 million in new loans in the first quarter, an amount he termed “a pittance. It, in essence, means they are out of the loan market.” Popejoy said FCA will lend $3.5 billion in 1985 once its new lending operations get rolling.
Popejoy noted several other bullish trends, including the fact that the S&L; plans to cut general and administrative expenses by $75 million in 1985, more than double what had previously been indicated. Since last September, the financial institution has sold 380 company-owned cars and three corporate aircraft, canceled the leases on four other planes and laid off 2,300 employees.
But the FCA chairman also acknowledged the problems, not the least of which is the S&L;'s $3 billion in non-earning assets. That includes problem loans, company-owned administrative facilities and accounting good will. Total assets stood at $27.9 billion on March 31.
Nevertheless, Popejoy says he personally acquired 10,000 shares of FCA’s stock on April 3 at $6.875 per share. It’s the first time he has acquired any shares in FCA and, he says, is proof that he feels the financial institution will survive.
So far, however, the purchase doesn’t look too good. FCA’s stock closed Monday at $5.50 a share, off 25 cents.