Results Mixed for 2 State Banks
San Francisco-based UnionBanCal Corp. reported 18% higher first-quarter profit Wednesday, citing lower loan losses, but earnings fell 19% at Downey Financial Corp. of Newport Beach, which saw its mortgage-servicing business undermined by the mass refinancing of home loans.
UnionBanCal operates Union Bank of California, the second-largest commercial bank with headquarters in the state. The company reported that first-quarter earnings rose to $135.5 million, or 89 cents a share, from $114.8 million, or 73 cents, a year earlier. Results, announced after the markets closed, met the expectations of analysts surveyed by Thomson First Call. Before the announcement, shares of UnionBanCal closed unchanged at $41.55 on the New York Stock Exchange.
Downey Financial, the parent of Downey Savings & Loan and the largest thrift based in Southern California, said profit fell to $30.2 million, or $1.08 a share, from $37.4 million, or $1.32, a year earlier. Analysts had forecast earnings of $1.14 a share, and Downey’s stock fell $1 to $40.75 on the NYSE.
Downey’s results revealed a downside to the mortgage boom that has boosted profits at large retail-oriented banking concerns such as Wells Fargo & Co., Bank of America Corp., and Washington Mutual Inc., all of which beat earnings expectations this week.
Downey sells the fixed-rate mortgages it originates, then charges the buyers for collecting payments from the homeowners. In recent months, so many borrowers have refinanced at lower rates that Downey has been unable to make new home loans fast enough to replace the old ones being paid off, reducing its flow of servicing fees.
In reaction, Downey wrote down the value of its mortgage-servicing rights by $13.1 million, contributing to a $6.1-million decline in first-quarter banking profit. Profit from Downey’s other business line, developing shopping centers, dropped by $1.1 million.
At UnionBanCal, stock market woes pushed trust and investment management fees down by $4.1 million, but service charges on deposit accounts rose by $6.1 million and commissions on insurance increased by $6.9 million, reflecting acquisitions of insurers.
The bank’s provision for credit losses fell to $30 million in the first quarter from $55 million a year earlier. In the latest quarter, however, UnionBanCal classified $67 million in airline leases as nonperforming assets, increasing the bank’s total amount of troubled loans 15% to $387 million and signaling that it expects to incur losses in this area.
“But the credit trends appear quite manageable,” said RBC Capital Markets analyst Joseph K. Morford, noting that the airline worries were no surprise given the industry’s troubles.
