S&L; Giants Post Higher Net Income
Two giant savings and loans reported stronger second-quarter earnings Wednesday despite a tough interest rate environment, with Washington Mutual Inc. saying it had fixed its troubled mortgage business and Golden West Financial Corp. seeing continued growth in its specialty of adjustable-rate loans.
Washington Mutual and Golden West, the parent of World Savings, were among several banks and thrifts with California operations that beat Wall Street expectations Wednesday. Also reporting better-than-expected results were City National Corp. in Beverly Hills, UnionBanCal Corp. in San Francisco and East West Bancorp in San Marino.
When the Federal Reserve raised short-term interest rates from 1% to 3.25% over the last year, it increased what banks must pay depositors. At the same time, interest rates fell on 10-year Treasury bonds and many mortgages, reducing the banks’ profit margins on lending.
Oakland-based Golden West, the largest thrift based in California, in the second quarter earned $360.4 million, or $1.16 a share, up 14% from $316.7 million, or $1.02, a year earlier. Lending income rose 12% despite the squeeze, and non-interest income, such as fees on accounts and services, rose 38%.
The earnings beat Wall Street estimates by a penny a share, but Golden West’s stock slipped 32 cents to $68.60 on worries that it might be vulnerable to losses on a type of adjustable-rate loan known as option ARMs. These loans allow borrowers to pay so little during the early years of their loans that the principal balance on their mortgages can rise.
Charlotte Chamberlain, an analyst at Jefferies & Co., dismissed the concerns about Golden West, saying it had successfully handled option ARMs since 1981.
Net income at Seattle-based Washington Mutual rose 73% to $844 million, or 95 cents a share, from $489 million, or 55 cents. Analysts had expected 83 cents a share.
The thrift’s net interest margin, or the difference between its cost of money and loan rates, declined to 2.66% from 2.86% a year earlier. But its growth in lending more than offset the effects of the lower margin. Lending income increased to $1.93 billion from $1.79 billion a year earlier. Non-interest income was $1.27 billion, up 42%.
Revenue from sales and servicing of mortgages was $403 million, compared with zero a year earlier.
Washington Mutual shares rose 73 cents to $41.73.
City National, a specialist in business lending and wealth management, reported net income of $57.7 million, or $1.13 a share, up 11% from $52.2 million, or $1.03. Revenue was up 11%, overall loans rose 9% to $8.8 billion, and bad loans declined.
The earnings, reported after stock markets closed, beat analysts’ forecasts by a penny a share. City National shares rose 51 cents to $75.60.
UnionBanCal Corp., the parent of Union Bank of California, reported earnings of $187 million, or $1.27 a share, easily beating expectations of $1.18 a share.
The earnings represented a 19% decline from the second quarter of 2004, when Union earned $231 million, or $1.54 a share. But that period included $63 million in gains from sales of a card business and real estate. Its stock rose 79 cents to $68.78.
East West reported net income of $25.5 million, or 47 cents a share, up 41% from $18 million, or 35 cents. That beat analysts’ expectations by 2 cents a share. It shares rose 82 cents to $37.42.
