Downey S&L; Reports Its 3rd Highest Profits Ever : Thrifts: Net income for 1990 was $42 million, contrasted with $13.6 million in 1989.
Downey Savings & Loan, boosted by stronger interest income, some tax-free money and an abundance of tax credits, reported Tuesday that its net income was $42 million last year.
The thrift’s earnings, the third-highest in its 34-year history, were more than triple the $13.6-million profit it posted in 1989.
For the fourth quarter, Downey reported net income of $13.2 million, contrasted with a $9.4-million loss in the year-earlier period.
“We had a much better year than what appears because we also deferred income to future years,” said Maurice L. McAlister, Downey’s president.
The S&L; deferred $11.3 million from gains of $28.1 million on sales of its extensive real estate holdings. Downey, mainly a traditional mortgage lender, also had been one of the biggest builders of neighborhood shopping centers in California and Arizona. It also has helped to develop housing tracts.
But the 1989 federal law that restructured the thrift industry requires thrifts to sell their real estate and other non-thrift ownership interests within five years or deduct such investments from their capital.
Downey had $248.5-million worth of real estate holdings at the end of December. McAlister said he hopes to sell enough properties by midsummer to raise money to allow the thrift to begin acquiring other assets. Downey had $4.2 billion in assets at the end of December, up slightly from $4.1 billion a year earlier.
“What we’re looking at is the potential of buying some of the branches from failed thrifts operated by regulators or from institutions that want to shrink in size,” McAlister said. “We also would take the loans that go with the branches.”
Industry stock analysts were pleased with the thrift’s earnings but a bit disappointed that it didn’t sell more of its real estate to take full advantage of tax credits it picked up with its 1988 purchase of the failed Butterfield Savings & Loan in Santa Ana.
“I believe they missed an opportunity,” said Campbell K. Chaney, an analyst with Sutro & Co. brokerage in San Francisco. “A lot of analysts were looking for earnings of $6 to $8 a share because of gains from real estate sales.”
But Downey earned only $2.60 a share in 1990, and that didn’t dazzle Wall Street. Downey’s stock closed Tuesday at $15.625 a share, down 87.5 cents.
Early last year, Downey officials had predicted that the thrift would come close to generating $100 million in income to take advantage of $104 million in tax credits that were to expire at the end of 1990. A softening in the real estate market stymied the thrift’s plans.
Still, Downey executives said, the amount of tax credits that expired is a slippery figure. For tax purposes, rather than financial-reporting purposes, Downey used about $80 million in tax credits last year and should be able to continue using the remainder in the future, they added.
Altogether, Downey gained $241 million in tax credits from the Butterfield deal.
A big chunk of Downey’s income last year--$21 million--came from a tax-free interest payment that the federal government made as part of the Butterfield deal. Regulators gave Downey a seven-year promissory note for $259.3 million to make up the difference between Butterfield’s debts and its assets, and the government has been paying interest on the note while reducing the principal.
But Downey’s core home-financing operations still provide its basic strength, said McAlister and industry analysts.
“We had a much higher income from normal operations--from the difference between our interest expense and the interest we were collecting,” McAlister said. “Also, we have very few non-earning assets.
At the end of the year, Downey had only $4.4 million in bad loans, and that represented only 0.2% of its $3 billion in total loans. Bankers typically strive to keep that ratio between 1% and 3%.
DOWNEY SAVINGS & LOAN’S PERFORMANCE
With the help of a bigger profit margin and some tax-free federal payments, Downey Savings & Loan posted net income of $42 million last year, more than triple the amount earned the previous year. About $21 million in federal assistance came as part of Downey’s agreement two years ago to take over insolvent Butterfield Savings & Loan in Santa Ana.
Figures in millions, except per-share data.
4th Qtr 4th Qtr 12 Months 12 Months 1990 1989 1990 1989 Revenue $107.1 $93.4 $400.2 $385.8 Net income (loss) 13.2 (9.4) 42.0 13.6 Per share (loss) $0.82 $0.58 $2.60 $0.85
Source: Downey Savings & Loan
