Plaza Home Mortgage Reports $10.2-Million 3rd-Quarter Loss : Finance: Downturn in business and internal accounting changes are blamed. Sale of the company is in jeopardy.
Plaza Home Mortgage Corp. said Monday that it lost $10.2 million for the third quarter--much more than expected--and that the loss significantly weakened the financial condition of its savings and loan subsidiary.
The quarterly loss of 87 cents a share also puts in jeopardy the pending $120-million sale of the company to Fleet National Bank, though a press release said that “many components” of the red ink “do not adversely affect” Plaza’s financial condition under sale terms.
The statement, however, said that various financial “benchmarks” needed to complete the deal early next year are subject to the deteriorating mortgage banking market and to the company’s future performance.
Chairman John T. French would not comment Monday about the latest bad news for the company, which also had to restate its tiny $21,000 first-quarter profit and its $9.8-million loss for the second quarter.
Executives at Fleet’s parent company, Fleet Financial Group Inc. in Providence, R.I., also would not comment about any effect Plaza’s results may have on its acquisition offer of $10.125 a share in cash.
Plaza, the nation’s 13th-largest mortgage lender last year and a major lender in poor and minority areas, saw its stock price fall 25 cents a share Monday to close at $7.5625 in Nasdaq trading.
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The continuing rise in interest rates this year had iced the market for fixed-rate loans, a staple in the mortgage banking business. Plaza Home Mortgage Bank in Santa Ana, the company’s primary subsidiary, has been one of the few thrifts to devote itself entirely to mortgage banking, which is the funding and selling of home loans.
The quarterly loss, more than twice the $4.9-million loss in last year’s third quarter, was much greater than the anticipated shortfall of $5.8 million to $6.5 million.
Together with restated earnings for the first two quarters, the third-quarter loss led Plaza to drop $20.1 million, or $1.71 a share, for the first nine months this year, contrasted with a profit of $1.3 million, or 11 cents a share, for the same period last year.
Plaza’s quarterly loss was bad, but, considering the state of the mortgage banking industry, “it should have been bad,” said Gary Gordon, an analyst with the brokerage PaineWebber in New York.
“It was a little worse than I had expected, but there are some explanations for it.”
The loss was caused partly by the huge downturn in business and partly by the company’s effort to “clean” its balance sheet by, for instance, recognizing increased costs and losses from its acquisition last year of an Albuquerque, N.M., mortgage servicing company. Servicing is the business of billing borrowers and collecting payments for a fee.
Plaza, which originated $2.2 billion in loans in last year’s third quarter, funded only $749.2 million in loans in this year’s third quarter.
Its $3.5 billion in loans for the first nine months is 38% lower than its $5.6 billion in loans funded during the same period last year.
The company’s total loans and other assets ballooned 47% to $1.1 billion at the end of September from $749.8 million a year earlier. That, coupled with its losses, put a strain on the thrift’s ratio of capital--its final reserve against losses--to assets.
The thrift now is “significantly undercapitalized,” according to federal standards, and must raise its level of capital or reduce its assets. The thrift would not release its capital ratio, but the federal category it is in puts the ratio at below 3%. A ratio of 5% would make it well capitalized.
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Reducing assets, usually easy to do, may be more difficult for Plaza. The thrift is a major player in mortgage loan servicing, and its acquisition would make Fleet the second-largest servicer in the nation. The sale agreement with Fleet limits Plaza’s ability to sell its servicing rights.
Plaza had a net gain of only $2.2 million on the sale of servicing rights during the third quarter, far below the $14.1 million gain in last year’s third quarter. Its year-to-date gains are running 63% below last year’s.
Plaza has only one full-service thrift branch, which is in Santa Ana, but it conducts mortgage banking activities through 41 loan centers in 13 states.
Plaza Posts a Loss
Plaza Home Mortgage Corp. reported a loss of $10.2 million for the third quarter as its revenue declined. Figures in thousands of dollars except data per share:
3rd qtr 3rd qtr 9 months 9 months 1994 1993 1994 1993 Net earnings ($10,235) ($4,932) ($20,051) $1,301 Total assets -- -- $1,106,298 $749,848 Earnings per share ($0.87) ($0.42) ($1.71) $0.11
Source: Plaza Home Mortgage Corp.
