HomeFed’s Bad Loans Increase to $1.3 Billion

SAN DIEGO —  HomeFed Bank’s deteriorating loan portfolio continues to worsen as non-earning assets jumped by $100 million during January and February to $1.3 billion, or 6.79% of the savings and loan’s total assets.

In a filing with federal regulators, HomeFed said its bad loans were up from the $1.2 billion, or 6.44% of assets, it reported as of Dec. 31. The S&L;’s high level of problem loans, more than double the benchmark ratio of healthy thrifts, seriously impairs its earning power and could prompt significant write-downs of asset values.

A spokesman for the 214-branch S&L; also said Thursday that HomeFed does not know when auditors from the Office of Thrift Supervision and Federal Deposit Insurance Corp., who are now reviewing HomeFed books, will finish their examination. Previously, HomeFed executives had said they expected the audit to be complete by the end of March. No reason was given for the delay.

In its annual 10-K filing with the U.S. Securities and Exchange Commission, HomeFed said its “management is unable to predict” what effect the audit will have on the S&L;’s nonperforming assets and loan loss provisions. Regulatory audits have frequently led to significant additional loan loss provisions, however.

Last year, a big jump in HomeFed’s bad loans forced it to set aside $547 million in loan loss provisions, resulting in a $248-million loss for the year. HomeFed attributed the increase in problem loans to slumping real estate markets in California and other states.

The thrift had disclosed previously that it expected to be out of compliance with one of the regulators’ three minimum capital requirements on or before July 1. As a result, HomeFed announced it planned to reduce its assets by $2.5 billion and cut overhead, partly through layoffs and staff attrition.

Noncompliance with the minimum capital requirements is also likely to lead to operating restrictions being placed on the S&L.;

In the filing, HomeFed also said federal examiners have raised “certain interpretive questions” regarding its application of new capital requirements. HomeFed declined to elaborate on that and other disclosures beyond those contained in the 10-K filing.