$19.2-Million Loss in January Listed by Pacific Savings
Pacific Savings Bank in Costa Mesa has told federal regulators that it lost $19.2 million during January, leaving the long-troubled S&L; with a negative net worth of $17 million at the end of the month.
The loss was caused largely by a write-down of distressed real estate assets in Texas and Colorado--an action required by the Federal Home Loan Bank--according to Pacific President Verne Potter.
Federal regulators, according to Pacific’s internal financial report for Jan. 31, are requiring the S&L; to maintain a minimum net worth of about $44.5 million each quarter and the huge January loss makes it unlikely that the S&L; will come close to meeting that minimum for the period ending March 31.
Still, Potter said Monday that the huge monthly loss does not place Pacific in any immediate jeopardy of regulatory action.
It is also unlikely, he said, to affect Pacific’s negotiations to be acquired by HF Holdings Inc., the San Francisco investment company headed by former Treasury Secretary William Simon.
In acknowledging Pacific’s loss, Potter said that officials at HF Holdings were made aware of the financial situation as soon as it was reported to federal regulators.
Officials at HF could not be reached Monday for comment.
Potter said, however, that acquisition negotiations with the San Francisco-based holding company are continuing and “going very well . . . we are close” to an agreement.
The steep drop in Pacific’s net worth--it was a positive $2.2 million on Dec. 31--does not present “any real problem” with the FHLB, Potter said. “They are helping us in our efforts to get a capital infusion” through acquisition by HF or some other investor.
Potter would not disclose Pacific’s financial situation as of Feb. 28 but said that he expects to report a profit.
The monthly report, he said, represents a wild swing from the norm because regulators required Pacific to re-value a large number of apartment developments in Texas and Colorado--states where a localized recession has depressed the real estate market.
Conservative View
“The regulators have a conservative view of these kinds of assets,” Potter said, “and they require us to mark them to current appraisals.”
The properties are not yet on the market, but Potter said he expects them to be worth considerably more when they are sold. In the meantime, however, they cannot be carried on the books at either their anticipated future value or at the value at which they were appraised when Pacific originally financed them, he said.
On Dec. 31, Pacific had $4.5 million in its reserve for possible losses on real estate investments. On Jan. 31, that figure jumped to $17 million.
Although a loss reserve represents funds that might not ever be spent, an S&L; is required to account for it as an expense.
In addition to the month-to-month increase in its loss reserve, Pacific reported a $3.5-million decline in income from interest on loans; a $4-million drop in income from the sale of real estate and a $1.4-million decline in income from the sale of loans to investors.
However, the S&L; also reported a $2.9-million decrease in its administrative and general operating expenses. Almost half that savings was achieved by slashing payroll and related personnel costs from $2.8 million in December to $1.4 million in January.
Potter said that the financial comparisons between January and December show such a wild swing in large part because December is an unusually busy month for Pacific--and most financial institutions--as customers race to wrap up various business deals before the tax year ends.
