HomeFed Corp. Reports $108-Million Loss in Period
Blaming deteriorating real estate markets in California and other states, HomeFed Corp. on Wednesday reported a $108-million loss for the second quarter after adding sharply to its loan-loss reserves.
The San Diego-based parent of HomeFed Bank also said it will shut down virtually all of its loan operations outside California except in Nevada because of a rising tide of bad loans in other states. At a press conference Wednesday, President Robert F. Adelizzi admitted that HomeFed’s out-of-state “diversification” was a mistake.
The magnitude of the loss for the quarter ended June 30, which compares to a $28.1-million profit for the same quarter last year, came as a surprise to an industry which by and large views HomeFed as one of the industry’s better-managed thrifts. Thanks to a strong balance sheet, HomeFed’s capital is still above the minimum levels required by regulators.
Thrift analyst Allan Bortel at the Sutro & Co. securities firm said the HomeFed loss was “an incredible hit,” but added that the S&L; “may very well be over-reserving . . . to clear the air. Big baths usually work because it means that in future periods your loss provisions are negligible.”
The loss was the direct result of $234 million in additional loan-loss provisions--which are charges against earnings--that HomeFed set aside for the quarter. Adelizzi said the provisions were warranted after HomeFed’s nonperforming assets ballooned during the quarter to $708 million, or 3.73% of total assets, up from $454 million, or 2.5%, as of March 31.
The bad loans were identified during a special review, conducted during late May and June, of all HomeFed loans over $2 million. The review was prompted by an alarming increase in bad loans in April and May when nonperforming assets increased by $40 million and $81 million, respectively. In June, bad loans increased by $133 million.
Adelizzi said the loan review was “management driven” and not done at the insistence of regulators.
HomeFed stock closed Wednesday at $19 per share, down $1.75, in New York Stock Exchange trading. Word of the loss was disclosed after the market had closed.
HomeFed’s misguided foray into out-of-state lending was responsible for most of the S&L;’s problem loans, Adelizzi said. Although only 20% of HomeFed’s loans are made outside California--primarily in Arizona, Massachusetts and Georgia--those loans account for 60% of the 212-branch thrift’s bad loans. About 30% of HomeFed’s total loans in Florida, for example, are either in default or in foreclosure, he said.
HomeFed has $19 billion in assets.
