SAN DIEGO — Home Federal Savings & Loan reported increased net earnings for the second quarter on Tuesday despite the thrift's "conservative" decision to take a $3.3-million writeoff of its investment in a recently discontinued federal insurance fund for savings and loans.
Even with the one-time expense, San Diego-based Home Federal reported that net income rose 3% to $26.6 million for the second quarter ended June 30. Net income increased 9% to $53.8 million for the first half of 1987.
Revenue rose 7% to $328.8 million for the quarter and by 10.6% to $637.7 million for the first half of 1987. The S&L reported that deposits as of June 30 increased 18% from a year ago to $9.1 billion and that assets rose 19% to $12.8 billion.
The Federal Savings & Loan Insurance Corp. created the secondary reserve account, which eventually grew to $824 million in the 1960s, when FSLIC ran into money problems. The account includes investments from about 2,200 S&Ls. The reserve account was created to pump capital into FSLIC to cover expenses generated when member S&Ls were declared insolvent.
Former FSLIC Chairman Edwin Gray earlier this year declared that the secondary fund no longer existed because FSLIC was insolvent. The Federal Home Loan Bank Board subsequently ordered S&Ls to write off their entire investments in the fund, which thrifts previously had carried on their balance sheets as assets.
Last week, San Diego-based Great American First Savings Bank did not take a second-quarter writeoff on its $7.9-million investment in the secondary reserve fund. CalFed, parent of California Federal Savings & Loan of Los Angeles, also said it would not take a writeoff on its $16.1-million investment in the secondary reserve fund.
In a related announcement, Los Angeles-based Great Western Financial Corp. on Tuesday said it did not plan to take a second-quarter writeoff on its $49.1-million investment because Congress is expected to pass an FSLIC recapitalization which would re-establish the fund, according to Great Western Chairman James Montgomery.
"A second-quarter writeoff, promptly followed by the restoration of this asset in the third quarter of 1987 would simply result in inaccurate and confusing financial reporting," Montgomery said.
Home Federal absorbed a second-quarter writeoff because of "uncertainty within the accounting profession as to whether this reserve should be written off," said Home Federal Chairman and Chief Executive Kim Fletcher in a prepared statement. "Home Federal elected to take a conservative approach and fully cover its secondary reserve asset."
A House and Senate conference committee has approved recapitalization legislation that would return the fund monies to S&Ls over a five-year period. If the agreement becomes law, FSLIC would re-fund the secondary reserve by allowing S&Ls to deduct their investments from future premiums paid to FSLIC.
Home Federal originated $1.4 billion in loans during the second quarter, compared to $1.1 billion during the second quarter of 1986. Two-thirds of Home Federal's $11-billion loan portfolio is in variable rate loans, the company said.