Homestead Takes Step Toward Survival

SAN FRANCISCO - Loss-plagued Homestead Savings said it has completed a debt-for-equity swap essential for its survival and has received regulatory approval for its capital-raising plan.

Homestead, which has $2.1 billion assets, also reported a $24.2 million loss for the second quarter, down slightly for a $28.7 million loss in the same period last year.

A Gain in Regulatory Capital

The Millbrae-based thrift, a unit Homestead Financial Corp., said it has exchanged 95.5% of its outstanding subordinated debentures for convertible voting preferred stock, resulting in a $79 million gain in regulatory capital.

Following the exchange, Homestead Savings' tangible and core capital equaled 1.91% of assets and risk-based capital totaled 4.24% of assets on a pro-forma basis.

The thrift is still short of regulatory minimums by $23 million in core capital and $36.4 million in risk-based capital.

"The company's viability is significantly improved," said John P. Halicky, chief financial officer of Homestead Savings.

Homestead's capital plan, given a green light by the Office of Thrift Supervision, requires closing the thrift's real estate development unit and selling its real estate properties.

The thrift said it has contracts to sell five apartment operations and has signed a letter of intent to sell $113 million in land parcels, pending due diligence and regulatory approval.

The red ink in the second quarter reflects losses that will be incurred when the real estate holdings are sold, Mr. Halicky said.

Liquidation of the development subsidiary would result in an immediate addition of about $25 million to capital, he said. As long as the development unit is in operation, that amount must be deducted in calculating regulatory capital.

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