The parent of Loyola Federal Savings and Loan Association, joining a growing chorus of financial institutions worried by the region's slowing economy, said yesterday it would report sharply lower earnings for the fourth quarter after pumping about $6.4 million into its reserves to guard against the possibility of mounting bad loans.
Baltimore-based Loyola Capital Corp., the state's second-largest thrift, said the move was not in response to any evidence of weakness in its current portfolio. Instead, analysts agreed that it appeared to be more of a precautionary step from a conservative and profitable thrift in the midst of a weakening economy.
Loyola said it expects $1.1 million to $1.4 million in profits for the final three months of this year, down from $2.6 million a year ago and $2.5 million for 1990's third quarter. The company added $1.7 million to its reserves for possible loan losses during last year's fourth quarter.
Loyola said it expects its income for 1990 to be $8.6 million to $9 million, compared with $10.5 million last year. A one-time gain from the sale of investment securities during the fourth quarter added $3 million in income, Loyola said.
"Although we have not experienced any significant change in our level of non-performing loans, our action does reflect the economic slowdown in the mid-Atlantic region and our decision to implement a more conservative methodology for reserving against possible future losses in our loan portfolio," said Joseph W. Mosmiller, Loyola's chairman and chief executive officer.
Analysts also said Loyola's decision to take a larger-than-usual provision during the fourth quarter takes advantage of a period when bank and thrift stocks were already hurt by wary investors troubled by the industry's mounting losses.
"Why not beef up reserves if you can do it?" said Elisabeth Albert Hayes, a banking analyst with Johnston, Lemon & Co. in Washington. "My thesis has been that anybody who can do it, should do it in the fourth quarter."
Loyola stock, traded over-the-counter, closed at $8 a share yesterday, down 37.5 cents.
Unlike many of the banks that have warned that their fourth-quarter earnings would be severely cut as the level of bad loans continues to rise and large provisions against those troubled loans are taken, Loyola has few loans outstanding in the risky area of real estate construction and development.
The thrift, with 32 offices and $2.1 billion in assets at the end of the third quarter, moved out of lending in commercial construction a few years back as its portfolio began to deteriorate when loans to resort areas in South Carolina weakened.
Analysts credited that experience for Loyola's relatively strong position. More than half of Loyola's loans were in real estate mortgages as of Sept. 30, and nearly one-third were consumer loans. Those are considered two of the safer lending sectors.
The company said that after its fourth-quarter provision, Loyola's total allowance for loan losses would be $17 million, or about 0.80 percent of average assets.
Loyola said its decision to increase its allowance for loan losses did not result from regulatory examinations earlier this year.