New England's Farmers and Mechanics Bank struck a deal to jettison $5.2 million of bad assets.
The Aug. 26 sale of the assets to an unidentified private investor brings the Middletown, Conn., thrift one step closer to cashing m on a $9 million tax credit.
The sale still leaves the $479-million asset thrift with $25 million of bad assets, 5.3% of total assets.
But it sets the thrift on a course to clear its books of problems and raise its earnings so it can benefit from the tax credit when earnings are high.
"It's exactly in line with what they've said they'd be doing and it really positions the company to move forward and fully utilize the tax benefit before it expires." said Jeffrey Cohn, an analyst with H.C. Wainwright & Co., Boston.
"This helps to accelerate the disposition of problem assets which should help us to uncover our core earning power more quickly - which in turn allows for a recognition of a portion of that net deferred tax asset," said Farmers and Mechanics chief financial officer Joel E. Hyman.
The sale also lets the thrift "earn money on the proceeds and avoid future costs for a while before disposing oF other assets, Mr. Hyman said.
Mr. Hyman said the thrift chose to take a $1.6 million loss on the sale rather than dip into its $1.1 million real estate loss reserve.
But officials also expect to recognize a portion of the tax credit for the quarter because of the pretax loss, although they don't know how much.
"Our goal is to try to get things resolved as quickly as possible at the best price and sometimes that may require a little more time and might push it beyond the third quarter," Mr. Hyman said. "It's a continuing effort, and we don't try to time it except to get it done as expeditiously as possible."
The loss on the property means Farmers and Mechanics will probably record a loss for the quarter, since earnings will not be able to offset it, thrift officials said in a press release.
Of the nonperforming assets sold. about $3 million were home mortgages, $1.8 million were delinquent loans, and $400,000 were foreclosed homes.
"These assets are the most problematic because they represent largely loan situations that need to be foreclosed, which takes some period of time and expense and then we need to market, fix up, and sell the underlying properties, which takes time," Mr. Hyman said.
Mr. Hyman said Farmers and Mechanics will continue to resolve its bad loans using routine methods, but will also seek further bulk sales. He declined to comment about whether the thrift has received any offers.
