ORANGE COUNTY EARNINGS : Downey Posts $9.6-Million Loss, Cites Special Charges
Downey Savings & Loan, buffeted by regulatory demands, reported a $9.6-million loss for the third quarter but remained profitable for the first nine months with net income of $13.9 million.
The quarterly loss and the possibility of a nine-month loss had been expected since the Newport Beach thrift revealed in mid-August that it would take a $32.4-million charge against earnings for writedowns on government bonds and for extra reserves on loans and real estate holdings.
“Actually, we had a good quarter from core earnings--from normal operations--and that was offset by the special losses,” said David T. Hansen, Downey’s chief financial officer. Operating income totaled $16 million before the special charges, he said.
The S&L;’s third-quarter loss, which amounted to 59 cents a share, contrasts with last year’s third-quarter profit of $5.3 million, or 33 cents a share. Its nine-month earnings, which came to 86 cents a share, represent a 52% drop from net income of $28.7 million, or $1.78 a share, for the same period last year.
The initial charge that Downey said it would have to take was reduced by about $6 million in September when the bond market improved.
The S&L;, which had held long-term government securities as investments, sold off its $252-million portfolio in September and October after regulators required the thrift to devalue the securities by $16.2 million. The October sales resulted in a $3.6-million loss that the thrift will charge against its fourth-quarter earnings.
The loss doesn’t hamper Downey’s strength. The S&L; still well exceeds federal requirements for capital, which is an institution’s final reserve against losses.
Quarterly revenue fell 23% to $73.6 million from $95.2 million in last year’s third quarter. For the nine-month period, revenue fell 12% to $260.5 million from $294.9 million in the same period last year.
Hansen attributed the lower revenue to lower interest rates and the recession dampening the California real estate market. Loan production in the third quarter, though, inched above last year’s quarterly total, indicating that the market may be on the rebound, he said.
Lower interest rates on deposits this year have caused some depositors to invest their money elsewhere, Hansen noted. The ultimate result is that Downey’s assets at the end of September dropped 2.5% to $3.9 billion from $4 billion a year earlier. Hansen said the flight of deposits in a declining interest-rate market is a recurring problem industrywide.
