Downey Stock Plummets on Surprise Profit News
Downey Financial Corp.’s stock slumped 12% Tuesday after the Newport Beach thrift reported an unexpected drop in third-quarter profit, as low interest rates fueled a mortgage-refinancing wave that cut into its loan-servicing income.
“It was completely out of left field, way below consensus,’ Dain Rauscher Wessels analyst Mark Agah said.
Downey, which originates residential mortgages and services home loans for other lenders, said net income for the quarter fell 17.4% to $21.8 million, or 77 cents a share, from $26.3 million, or 93 cents per share, a year earlier.
Analysts had expected earnings of $1.11 a share for Downey, the holding company for Downey Savings & Loan, according to a survey by Thomson Financial/First Call.
Downey’s shares fell to a 52-week low of $33.50 before rebounding a bit to close at $33.58, off $5.41, on the New York Stock Exchange. The stock has lost more than 45% of its value from its all-time high of $61.94 last December.
Net interest income rose 9% to $73.4 million from $67.2 million, but that was offset by $11.8 million Downey had to set aside to cover a projected drop in the value of the loans it services as home owners prepaid existing mortgages and sought cheaper ones as interest rates fell.
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Westcorp, an Irvine financial services holding company whose principal subsidiaries are WFS Financial Inc. and Western Financial Bank, reported that third-quarter net income fell 55% to $8.2 million, or 23 cents a share, from $18.2 million, or 57 cents a share, for the same period a year ago. WFS Financial Inc. reported net income of $9.3 million, or 27 cents a share, down 46% from the year-earlier figure of $17.3 million, or 61 cents a share, for the same period a year ago. Revenue increased 9% to $107 million. Last month, Westcorp and WFS, its auto loan subsidiary, lowered quarterly earnings expectations, citing high credit losses from a rise in bankruptcies and repossessions, along with lower wholesale auction prices for automobiles.
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Newport Beach-based home builder Capital Pacific Holdings Inc. posted net income of $1.2 million, or 8 cents a share, for the second quarter, 52% lower than the $2.5 million, or 18 cents a share, reported a year ago. Revenue declined 16% to $81 million, as the company shed commercial and resort development businesses to focus on home building.
