Plans Two Acquisitions : Great American Bank Sells Off $1.1 Billion in Loans, Securities
In an unusual burst of investment activity, Great American First Savings Bank has sold $1.1 billion in loans and mortgage-backed securities so far this year, chalking up gains totaling $80 million.
Analysts said the sales may have been prompted by a need to bolster the firm’s net worth in advance of two planned acquisitions of capital-deficient thrifts based in Colorado and Washington. Great American’s trading so far this year contrasts with sales of $1.6 billion worth of loans and securities and gains of $70 million over all of 1986.
Although Great American’s regulatory net worth of $754 million on assets of $13.1 billion is above the 3% minimum required by federal regulators, its net worth-to-assets ratio of 4.17% is below many of its peer institutions, according to Joe Jolson, a savings and loan analyst with Montgomery Securities in San Francisco.
Home Federal Savings & Loan of San Diego, for example, has a net worth-to-assets ratio of 6.63%, H.F. Ahmanson & Co. has 6.08%, and Great Western Financial Corp. has 5.78%, Jolson said.
Great American’s capital is a focus of attention because it has announced plans to merge with Capital Savings Bank, a 42-branch thrift with assets of $725 million based in Olympia, Wash. Capital has a regulatory net worth of $17.5 million, but its equity is 2.4% of assets, below federal requirements.
Great American Treasurer Jim Krzeminski said Wednesday that Capital is profitable and would soon attain capital sufficiency on its own at its current earnings rate.
Great American is also negotiating to acquire First Security Federal Savings & Loan of Grand Junction, Colo., a two-branch thrift with assets of $58 million. The institution’s shareholder equity was a negative $1.6 million last November when regulators assumed control.
In a talk Wednesday before the New York Society of Financial Analysts, Great American Chairman Gordon Luce said the sale of the investments was influenced by market timing. Most of the investments sold were securities backed by 30-year mortgages guaranteed by Federal National Mortgage Assn.
“The interest-rate outlook in late January and early February pointed to the advantage of selling fixed-rate securities,” Luce said. Krzeminski said the institution also wanted to “re-position” its investments to loans and securities with shorter-term maturities.
Jolson said the gain on the sales of the loans and securities could boost Great American earnings up to $1.50 per share if the entire gain were taken over the first quarter ending March 31.
However, Krzeminski said the bank will not allocate all of the gain to first quarter. By using part of the gains to build loan loss reserves, “we can bring profits in over a longer period,” he said.
“I think they want to beef up their net worth when they take a big gain like that. It’s always nice to have more net worth when they are making mergers all the time, especially when some of the companies they are merging with don’t have any net worth,” said Allan Bortel, an analyst with Shearson Lehman Brothers of San Francisco.
