Earnings Drop for San Diego’s 2 Largest S

SAN DIEGO — San Diego’s two largest savings institutions, Great American First Savings Bank and Home Federal Savings, both reported lower second-quarter earnings Wednesday.

Great American posted the larger drop and blamed it on lower gains on sale of loans and marketable securities than during the same quarter last year. Great American continued to wrestle with its problem loans and made an increased provision for loan and interest losses, a charge on earnings.

Great American’s net income for the quarter was $7.6 million, down from $22 million for the second quarter of 1987. Because the S&L; also registered an earnings decrease for the year’s first quarter, its year-to-date profit of $21.9 million is off significantly from the $52.4 million it reported for the same period last year.

Higher Overhead Noted

Home Federal’s second-quarter profit was $26.5 million, down from $28.9 million for the year-ago quarter. Home Fed said the lower profit was affected by higher overhead brought on by a sharp increase in new loan volume. On a year-to-date basis, Home Fed’s earnings are $51.2 million, down from $60.5 million for the same two quarters last year.

Great American’s non-performing assets, or the total of loans delinquent 90 days or more plus those in foreclosure, dropped 8.6% from the $556 million total three months ago, but at $510 million still represent more than 3.3% of the S&L;’s $15.5 billion in total assets, a significantly higher percentage than most healthy thrifts.

A high percentage of non-performing assets are unfavorable because they produce no benefit to the S&L;, constituting a “drag” on earnings.

“It’s not a great quarter, but the fact they have reduced non-earning assets by 8% is very encouraging,” said David Hochstim, an analyst with Shearson Lehman Hutton in San Francisco. “They still have a lot to take care of. They have a big chunk of their balance sheet not earning anything.”

Great American formed a task force headed by Senior Vice President Tom Carter earlier this year, with the goal of whittling the bad loans by $200 million this year. But Great American’s non-performing loan total is now higher than the $502 million reported at the end of 1987.

Nevertheless, Great American President Roger Lindland said Wednesday that the S&L;’s goal of a $200-million reduction in bad loans this year is still its target.

Sales Helped Results

Great American’s second-quarter results last year benefited from a $25.6-million gain on the sale of loans and marketable securities. The S&L;’s gain during this year’s corresponding quarter was only $9.7 million.

The S&L;’s net interest income after provisions for probable loan and interest losses was $41.7 million, up from first-quarter interest income of $39.3 million but down from the $56.8 million reported for last year’s second quarter. The second quarter’s interest income was adversely affected by provisions totaling $18.8 million for probable loan and interest losses, up from $9.5 million in provisions a year ago.

Great American also disclosed a dispute with the Federal Home Loan Bank over whether Great American has made an adequate loss provision for a delinquent $22-million loan secured by an undeveloped 3,000-acre property near Dallas.

The Federal Home Loan Bank system believes Great American may be facing a $4-million loss if it is forced to foreclose on the loan and that it should set aside a reserve to cover the possible loss. Lindland said Wednesday that the S&L; has made no loss provision for the loan and that it believes none is necessary.

On the bright side, Lindland said Great American’s loan originations increased to $2.4 billion for the first six months of the year, up from $1.5 billion over the same period last year. Great American’s assets of $15.5 billion were up from $15.2 billion as of Dec. 31. Deposits as of June 30 were $11 billion, up from $10.6 billion six months previous. Loans were $10.1 billion, up from $9.5 billion.

Home Federal reported a gain on the sale of loans and marketable securities of $7.6 million, up from $5.6 million a year ago. The S&L; disclosed it sold all its preferred stock in the Federal Home Loan Mortgage Corp. for a $5.4 million gain during the quarter.

Home Fed said interest income, less provisions for loan and interest losses, was $85.1 million, up slightly from $84.8 million for the same quarter a year ago. Income from real estate operations was $11.9 million up from $11.6 million a year ago. Home Fed’s nonperforming loans on June 30 as a percentage of its $15.2 billion in assets were 2.47%, down from 2.52% a year previous.