As expected, the Home Savings and Loan Co. of Youngstown reported a consolidated net loss of $26.9 million for the third quarter Tuesday, stemming from a costly hit it took on a $115 million asset sale in September.
At the time, the move cleared nearly $93 million in troubled loans from the bank’s balance sheet and significantly reduced impaired or underperforming loans at the bank. Though Tuesday’s earnings report showed a $23 million loss in the first nine months of the year, bank officials say the loss indicates progress in reducing risk and greatly improving asset quality.
“In no way does this affect the level of service we provide,” said Jim Reske, chief financial officer. “Completing the bulk sale and taking the loss was money well spent, and it certainly puts us back on track.”
Reske added the bank’s capital ratio also has improved since the sale, giving it more leverage against what troubled assets remain and bringing it within less than a percentage point of what regulators expect.
Delinquent loans at the bank were $51.2 million in the third quarter, down 59.6 percent since the beginning of the year. Nonperforming assets, which stood at $66.8 million in the third quarter, were down 57.4 percent year to date, and uncollectible loans were at $58.4 million, down by 73 percent since early 2012.
But the provision for loan losses shot up from $6.3 million in the second quarter to $30.3 million, mainly as the result of a $29.4 million loss incurred during the bulk-loan sale in September.
At the time, Home Savings sold assets with a total unpaid principal balance of $147.8 million to Navy Portfolio, an affiliate of the California-based Sabal Financial Group, which specializes in the acquisition and management of troubled loans.
In 2008, the Federal Deposit Insurance Corp. issued a cease-and-desist order to Home Savings for its strong concentration of impaired acquisition and development loans.
Home Savings was able to meet the demands of the order by capitalizing on two separate deals to sell off foreclosed properties and other uncollectible assets.
The assets sold to Navy Portfolio earned Home Savings $77.4 million, but the loss it recorded still reared its head in the third-quarter results.
Like other banks, Home Savings will be required to keep more capital on hand to meet strict regulations, and it only recently realigned its lending practices in order to curb its risk.
Third-quarter net interest income reflected that approach, declining by $2.3 million in the second quarter to $14.1 million. Net margin, or the profit the bank earned on its investments, also decreased slightly to 3.17 percent in the third quarter.
Reske called the bank’s progress since 2008 an “unbelievable win” and said Home Savings is in a better position than its management expected four years ago.