HomeFed Troubles Mount With News of 1st Quarter Loss
Amid growing deterioration of its loan portfolio, HomeFed Bank on Thursday reported a $173.9-million loss for its first quarter, a setback that casts further doubt on the savings and loan’s chances of survival.
The loss also brought the 210-branch, San Diego-based S&L; out of compliance with one of three minimum capital standards applied by regulators, a shortfall that is likely to lead to the S&L; being slapped with operating restrictions.
HomeFed, the nation’s fifth largest S&L; with $18 billion in assets, also said it will soon be short of a second capital benchmark. The loss, which compares with a $34.5-million profit over the first quarter last year, follows a $247.5-million net loss in 1990 caused by the setting aside of $546 million for possible loan losses.
A loss and capital shortfall was expected after HomeFed announced last week it would set aside $200 million more for troubled loans in the first quarter. The provision reflects the results of a recently completed audit of HomeFed’s books by federal regulators. The $200-million in loss provisions compares with $12.9 million in provisions for last year’s first quarter.
In an interview, HomeFed Chief Executive Robert Adelizzi said he expected the S&L; to soon submit a capital plan to regulators. Acceptance of such a plan by regulators usually involves restrictions on certain lending activities, such as making construction loans and a prohibition on brokered deposits.
HomeFed had previously announced it planned to trim $2.5 billion in assets from its books by the end of this year, a plan that Adelizzi said is on track. But Adelizzi said no further job reductions are planned at HomeFed as a result of the loss.
The loss is only the latest in a year-long litany of bad news for HomeFed, once considered an industry stalwart. The S&L;’s problems first became evident last spring when defaults of apartment and office loans mounted in Florida and other Eastern states. But the problems have since spread to California, where about 55% of its non-accrual loans are now based.
“It’s difficult to predict what’s going to happen. It’s clear they can’t go on forever losing $200 million a quarter. No one can,” said David Hochstim, a vice president and investment analyst with Bear, Stearns & Co. in New York.
The loss lowered HomeFed Bank’s risk-based capital-to-assets ratio to 6.09% on March 31, or $154.6 million below the minimum requirement of 7.2%. The bank’s core capital was 3.03%, exceeding its current minimum requirement by $4.6 million. But the S&L; said it expects to be out of compliance with the core capital requirement in the near future.
Analysts say they expected the loss but expressed concern about the growing volume of HomeFed’s problem loans. Nonperforming assets--loans either in foreclosure or delinquent 90 days or more--rose by nearly $300 million over the quarter to $1.47 billion, or 8.4% of assets, as of March 31. The swelling of HomeFed’s nonperforming assets have caused a steady erosion in HomeFed’s net interest income, or “spread,” a key measure of a S&L;’s earning power. HomeFed’s spread--the difference between its yield on loans and investments and the cost of its deposits and borrowings--was 2.54% as of March 31, down from 2.87% a year ago.
Net interest income, before provisions for loan losses, for the quarter was $82.8 million, compared to $116 million for the first quarter of 1990.
“They need to get the problem assets down, although the first thing they need is to have them stop going up,” said Lawrence R. Vitale, vice president and stock analyst with Keefe, Bruyette & Woods of San Francisco. HomeFed’s survival may hinge on a short-term improvement in California’s real estate market, he said.
“They got their work cut out for them,” Vitale said.
News of HomeFed’s loss was released after the stock market closed on Thursday. HomeFed shares closed up $.125 per share at $3.625 in New York Stock Exchange trading.
