EXHIBIT 99.1
Table of Contents
Earnings Release and Table Listing
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. |
N E W S R E L E A S E | | For further information contact:
Thomas E. Prince
Chief Financial Officer
(949)509-4440 |
|
DOWNEY ANNOUNCES THIRD QUARTER EARNINGS
Newport Beach, California - October 16, 2003 - Downey Financial Corp. (NYSE: DSL) reported that net income for the third quarter of 2003 totaled $29.3 million or $1.05 per share on a diluted basis, over double the $14.6 million or $0.52 per share in the year-ago third quarter. No shares of common stock were repurchased during the third quarter of 2003, and $38 million of the previously announced $50 million authorization remains for future share repurchases.
The increase in net income between third quarters primarily reflected:
- A $24.4 million increase in gains from sales of loans and mortgage-backed securities;
- A $20.5 million improvement in loan servicing activities;
- A $3.5 million increase in income from real estate and joint ventures held for investment; and
- A $2.6 million increase in loan and deposit related fees.
Those favorable items were partially offset by:
- A $11.0 million loss from trading securities;
- A $8.6 million decline in net interest income; and
- A $6.4 million increase in general and administrative expense.
For the first nine months of 2003, net income totaled $78.0 million, up from $72.3 million from the same period a year ago. On a diluted per share basis, net income was $2.79 for the first nine months of 2003, up 9.0% from $2.56 a year ago.
Net Interest Income
Net interest income totaled $68.3 million in the third quarter of 2003, down $8.6 million or 11.2% between third quarters. Interest-earning assets, which averaged $11.0 billion in the current quarter, were up 1.2% from a year ago. The favorable impact of higher interest-earning assets was more than offset by a decline in the effective interest rate spread. The effective interest rate spread averaged 2.48% in the third quarter, down from 2.83% a year ago and down from 2.70% in the second quarter of 2003. The decline between third quarters was due to the yield on interest-earning assets declining more rapidly than the cost of funds. The more rapid decline in the yield on interest-earning assets primarily reflected a positive interest rate gap (i.e., more interest-earning assets reprice to market interest rates within one year than do interest-bearing liabilities). In addition, the decline in the effective interest rate spread als o reflected a higher proportion of lower yielding investment securities, a higher proportion of MTA ARMs that currently have lower fully-indexed yields than COFI ARMs and a lower percentage of higher yielding subprime loans.
For the first nine months of 2003, net interest income totaled $223.6 million, down $8.4 million from a year ago.
Provision for Loan Losses
During the current quarter, $1.1 million of provision for loan losses was reversed, compared to an expense of $0.5 million in the year-ago third quarter. The current quarter reversal reflected both an improvement in credit quality and a decline in the loan portfolio. The allowance for loan losses was $31 million at September 30, 2003, compared to $35 million at year-end 2002. Net charge-offs totaled $0.4 million in the third quarter of 2003, compared to $1.4 million a year-ago. Year-ago net charge-offs included a $1.2 million charge-off of a commercial real estate loan for which a short-pay was accepted in full satisfaction of the loan.
For the first nine months of 2003, $3.4 million of provision for loan losses was reversed and net charge-offs were $0.8 million. That compares to a provision for loan losses of $0.8 million and net charge-offs of $2.1 million in the year-ago period.
Other Income
Other income totaled $33.5 million in the third quarter of 2003, compared to a loss of $4.8 million a year ago. Contributing to the $38.3 million improvement between third quarters was:
- A $24.4 million improvement in net gains from sales of loans and mortgage-backed securities. Net gains in the current quarter totaled $23.5 million, including a $1.1 million gain due to the SFAS 133 impact of valuing derivatives associated with the sale of loans. Excluding the impact of SFAS 133, a gain equal to 1.15% of secondary market sales of $1.9 billion was realized, which compares favorably to the year-ago gain of 0.10%.
- A $20.5 million improvement in loan servicing activities. Loan servicing income totaled $1.5 million in the current quarter, compared to a loss of $19.0 million a year ago. The current quarter primarily benefited from a $5.1 million recapture of valuation allowances for mortgage servicing rights, whereas the year-ago quarter included a provision to increase valuation allowances by $18.0 million. The recapture of valuation allowances in the current quarter reflected rising mortgage interest rates resulting in a slower projected rate at which the loans we service for others are expected to prepay, thereby lengthening their expected average life. While future prepayment speeds are currently projected to slow, prepayments were high during the current quarter resulting in an impairment write-down of $13.9 million against the allowance. At September 30, 2003, mortgage servicing rights, net of a $22 million valuation allowance, totaled $70 million or 0.78% of the $9.1 billion of associated loa ns serviced for others.
- A $3.5 million increase in income from real estate and joint ventures held for investment due primarily to higher gains from sales. Gains from sales in the current quarter totaled $5.4 million and were $3.8 million higher than a year ago.
- A $2.6 million increase in loan and deposit related fees, primarily reflecting increases of $1.2 million in loan prepayment fees and $0.8 million in deposit related fees.
Those increases in other income were partially offset by two items. First, a loss of $11.0 million was realized from trading securities. The trading securities were sold in July and served as a partial economic hedge against mortgage servicing rights. And second, the other income category reflected a loss of $0.7 million which included a $1.1 million loss associated with computer software no longer being utilized, compared to income of $0.9 million a year ago.
For the first nine months of 2003, other income totaled $63.8 million, up $33.2 million from a year ago.
Operating Expense
Operating expense totaled $52.4 million in the current quarter, up $5.9 million or 12.6% from the third quarter of 2002, due primarily to higher general and administrative expense. For the first nine months of 2003, operating expense totaled $155.9 million, up $19.3 million or 14.1% from a year ago.
Assets, Loan Originations and Deposits
At September 30, 2003, assets totaled $11.2 billion, down $1.4 billion or 10.9% from a year ago. Included in year-ago assets were $1.0 billion of 30-year fixed rate mortgage-backed securities purchased in late September of 2002, but sold in the following month due to interest rate volatility and the potential adverse impact market interest rate changes could have on the carrying value of the investment. Since year-end 2002, assets are down $819 million. Even though mortgage interest rates rose during the current quarter, refinance activity continued to remain high, as loan applications submitted when interest rates were lower in the second quarter funded in the current quarter. As a result, loan repayments continued to exceed portfolio originations and loans held for investment declined $399 million in the quarter and were $672 million below the year-end level. In addition, loans held for sale declined $386 million in the quarte r and were $317 million below the year-end level, as the volume of new fixed rate applications fell due to the rise in mortgage interest rates during the current quarter. The decline in loans since year end was partially offset by an increase of $173 million in investment securities, the majority of which adjust to market interest rates every three months. During the quarter, the single family unfunded loan application pipeline declined 42.1% to $1.7 billion due to a decline in applications of fixed rate loans for sale reflective of the increase in mortgage interest rates.
Single family loan originations (including purchases) totaled $2.576 billion in the third quarter of 2003, down from the $2.832 billion in the third quarter of 2002. Single family loans originated for sale declined $234 million to $1.566 billion, while single family loans originated for portfolio declined by $22 million to $1.010 billion. Of the current quarter total originated for portfolio, $56 million represented subprime credits. At quarter end, the subprime portfolio totaled $1.1 billion, with an average loan-to-value ratio at origination of 74% and, of the total, 90% represented "A-" credits. In addition to single family loans, $103 million of other loans were originated in the quarter.
Deposits totaled $8.6 billion at September 30, 2003, down 5.0% from the year-ago level and 6.8% from year-end 2002. During the quarter, one new in-store branch was opened. This brings the total number of branches to 171, of which 168 are in California and three are in Arizona. At quarter end, the average deposit size of our 72 traditional branches was $100 million, while the average deposit size of our 99 in-store branches was $14 million ($16 million excluding the 14 new in-store branches opened within the past 12 months).
Non-Performing Assets
Non-performing assets declined $4 million during the quarter to $63 million, or 0.56% of total assets compared to 0.67% at year-end 2002. The decline during the quarter was primarily in subprime residential loans.
Regulatory Capital Ratios
At September 30, 2003, Downey Financial Corp.’s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 8.16% and a risk-based capital ratio of 15.92%. These capital levels were well above the "well capitalized" standards of 5% and 10%, respectively, as defined by regulation.
Certain statements in this release may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." Downey’s actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, economic conditions, competition in the geographic and business areas in which Downey conducts its operations, fluctuations in interest rates, credit quality and government regulation. Downey does not underta ke to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.
For further information contact: Thomas E. Prince, Executive Vice President and Chief Financial Officer at (949)509-4440.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | September 30, |
(Dollars in Thousands, Except Per Share Data) | 2003 | 2002 | 2002 |
|
Assets | | | | | | | | | |
Cash | $ | 113,075 | | $ | 123,524 | | $ | 135,493 | |
Federal funds | | 4,001 | | | 2,555 | | | 16,702 | |
|
| Cash and cash equivalents | | 117,076 | | | 126,079 | | | 152,195 | |
U.S. Treasury securities, agency obligations and other investment | | | | | | | | | |
| securities available for sale, at fair value | | 635,825 | | | 457,864 | | | 267,310 | |
Municipal securities held to maturity, at amortized cost (estimated | | | | | | | | | |
| fair value of $6,135 at December 31, 2002 | | | | | | | | | |
| and $6,305 at September 30, 2002) | | - | | | 6,149 | | | 6,320 | |
Loans held for sale, at lower of cost or fair value | | 335,437 | | | 652,052 | | | 665,587 | |
Mortgage-backed securities available for sale, at fair value | | 1,590 | | | 2,253 | | | 1,019,030 | |
Loans receivable held for investment | | 9,650,441 | | | 10,322,637 | | | 10,000,420 | |
Investments in real estate and joint ventures | | 32,435 | | | 33,890 | | | 40,371 | |
Real estate acquired in settlement of loans | | 7,436 | | | 12,360 | | | 15,441 | |
Premises and equipment | | 111,201 | | | 113,536 | | | 113,258 | |
Federal Home Loan Bank stock, at cost | | 121,813 | | | 117,563 | | | 116,041 | |
Mortgage servicing rights, net | | 70,400 | | | 57,729 | | | 46,912 | |
Other assets | | 75,713 | | | 76,039 | | | 75,533 | |
|
| $ | 11,159,367 | | $ | 11,978,151 | | $ | 12,518,418 | |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
Deposits | $ | 8,608,068 | | $ | 9,238,350 | | $ | 9,056,932 | |
Federal Home Loan Bank advances and other borrowings | | 1,263,328 | | | 1,624,084 | | | 1,869,789 | |
Company obligated mandatorily redeemable capital securities of | | | | | | | | | |
| subsidiary trust holding solely junior subordinated debentures | | | | | | | | | |
| of the Company ("Capital Securities") | | 120,000 | | | 120,000 | | | 120,000 | |
Accounts payable and accrued liabilities | | 180,869 | | | 102,533 | | | 618,210 | |
Deferred income taxes | | 92,892 | | | 70,080 | | | 62,680 | |
|
| Total liabilities | | 10,265,157 | | | 11,155,047 | | | 11,727,611 | |
|
Stockholders’ equity: | | | | | | | | | |
Preferred stock, par value of $0.01 per share; authorized 5,000,000 | | | | | | | | | |
| shares; outstanding none | | - | | | - | | | - | |
Common stock, par value of $0.01 per share; authorized 50,000,000 | | | | | | | | | |
| shares; issued 28,235,022 shares at September 30, 2003, | | | | | | | | | |
| December 31, 2002 and September 30, 2002 | | 282 | | | 282 | | | 282 | |
Additional paid-in capital | | 93,792 | | | 93,792 | | | 93,792 | |
Accumulated other comprehensive income (loss) | | (757 | ) | | (1,422 | ) | | 274 | |
Retained earnings | | 813,063 | | | 742,622 | | | 705,172 | |
Treasury stock, at cost, 306,300 shares at September 30, 2003 and | | | | | | | | | |
| December 31, 2002 and 212,300 shares at September 30, 2002 | | (12,170 | ) | | (12,170 | ) | | (8,713 | ) |
|
| Total stockholders’ equity | | 894,210 | | | 823,104 | | | 790,807 | |
|
| $ | 11,159,367 | | $ | 11,978,151 | | $ | 12,518,418 | |
|
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | Nine Months Ended |
| September 30, | September 30, |
|
|
(Dollars in Thousands, Except Per Share Data) | 2003 | 2002 | 2003 | 2002 |
|
Interest income | | | | | | | | | | | | |
Loans receivable | $ | 119,990 | | $ | 150,987 | | $ | 393,363 | | $ | 459,712 | |
U.S. Treasury securities and agency obligations | | 2,497 | | | 2,190 | | | 7,520 | | | 7,386 | |
Mortgage-backed securities | | 16 | | | 287 | | | 51 | | | 2,503 | |
Other investments | | 1,196 | | | 1,460 | | | 4,336 | | | 5,146 | |
|
| Total interest income | | 123,699 | | | 154,924 | | | 405,270 | | | 474,747 | |
|
Interest expense | | | | | | | | | | | | |
Deposits | | 38,010 | | | 59,598 | | | 128,229 | | | 188,354 | |
Borrowings | | 14,304 | | | 15,314 | | | 44,280 | | | 45,226 | |
Capital securities | | 3,040 | | | 3,040 | | | 9,122 | | | 9,122 | |
|
| Total interest expense | | 55,354 | | | 77,952 | | | 181,631 | | | 242,702 | |
|
Net interest income | | 68,345 | | | 76,972 | | | 223,639 | | | 232,045 | |
Provision for (reduction of) loan losses | | (1,104 | ) | | 471 | | | (3,437 | ) | | 812 | |
|
| Net interest income after provision for (reduction of) loan losses | | 69,449 | | | 76,501 | | | 227,076 | | | 231,233 | |
|
Other income, net | | | | | | | | | | | | |
Loan and deposit related fees | | 14,405 | | | 11,848 | | | 40,032 | | | 34,762 | |
Real estate and joint ventures held for investment, net | | 5,864 | | | 2,407 | | | 8,876 | | | 6,420 | |
Secondary marketing activities: | | | | | | | | | | | | |
| Loan servicing income (loss), net | | 1,550 | | | (18,963 | ) | | (33,828 | ) | | (35,168 | ) |
| Net gains (losses) on sales of loans and mortgage-backed securities | | 23,467 | | | (971 | ) | | 55,882 | | | 22,126 | |
| Net gains on sales of mortgage servicing rights | | - | | | - | | | 23 | | | 306 | |
Net losses on trading securities | | (11,040 | ) | | - | | | (10,449 | ) | | - | |
Net gains on sales of investment securities | | - | | | - | | | 8 | | | 209 | |
Litigation award | | - | | | - | | | 2,717 | | | - | |
Other | | (747 | ) | | 913 | | | 584 | | | 2,034 | |
|
| Total other income (loss), net | | 33,499 | | | (4,766 | ) | | 63,845 | | | 30,689 | |
|
Operating expense | | | | | | | | | | | | |
Salaries and related costs | | 34,312 | | | 29,067 | | | 101,466 | | | 86,819 | |
Premises and equipment costs | | 8,291 | | | 7,916 | | | 23,975 | | | 22,803 | |
Advertising expense | | 835 | | | 1,066 | | | 2,644 | | | 3,692 | |
SAIF insurance premiums and regulatory assessments | | 787 | | | 765 | | | 2,443 | | | 2,313 | |
Professional fees | | 798 | | | 91 | | | 1,844 | | | 888 | |
Other general and administrative expense | | 7,718 | | | 7,474 | | | 23,722 | | | 20,035 | |
|
| Total general and administrative expense | | 52,741 | | | 46,379 | | | 156,094 | | | 136,550 | |
Net operation of real estate acquired in settlement of loans | | (376 | ) | | 110 | | | (190 | ) | | 79 | |
|
| Total operating expense | | 52,365 | | | 46,489 | | | 155,904 | | | 136,629 | |
|
Income before income taxes | | 50,583 | | | 25,246 | | | 135,017 | | | 125,293 | |
Income taxes | | 21,332 | | | 10,678 | | | 57,034 | | | 52,972 | |
|
| Net income | $ | 29,251 | | $ | 14,568 | | $ | 77,983 | | $ | 72,321 | |
|
PER SHARE INFORMATION | | | | | | | | | | | | |
|
Basic | $ | 1.05 | | $ | 0.52 | | $ | 2.79 | | $ | 2.56 | |
|
Diluted | $ | 1.05 | | $ | 0.52 | | $ | 2.79 | | $ | 2.56 | |
|
Cash dividends declared and paid | $ | 0.09 | | $ | 0.09 | | $ | 0.27 | | $ | 0.27 | |
|
Weighted average diluted shares outstanding | 27,963,374 | | 28,132,199 | | 27,962,012 | | 28,229,288 | |
|
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
| Three Months Ended | Nine Months Ended |
| September 30, | September 30, |
|
|
(Dollars in Thousands) | 2003 | 2002 | 2003 | 2002 |
|
Net income by business segment | | | | | | | | | | | | |
Banking | $ | 25,621 | | $ | 13,100 | | $ | 72,271 | | $ | 68,511 | |
Real estate investment | | 3,630 | | | 1,468 | | | 5,712 | | | 3,810 | |
|
| Total net income | $ | 29,251 | | $ | 14,568 | | $ | 77,983 | | $ | 72,321 | |
|
| | | | | | | | | | | | |
Selected financial ratios | | | | | | | | | | | | |
Effective interest rate spread | | 2.48 | % | | 2.83 | % | | 2.68 | % | | 2.91 | % |
Efficiency ratio(a) | | 54.95 | | | 66.45 | | | 56.58 | | | 53.32 | |
Return on average assets | | 1.02 | | | 0.52 | | | 0.90 | | | 0.87 | |
Return on average equity | | 13.16 | | | 7.44 | | | 12.07 | | | 12.54 | |
|
| | | | | | | | | | | | |
Asset activity | | | | | | | | | | | | |
Loans for investment portfolio: (b) | | | | | | | | | | | | |
| Originations: | | | | | | | | | | | | |
| | Residential one-to-four units | $ | 953,460 | | $ | 881,577 | | $ | 2,883,088 | | $ | 2,730,772 | |
| | Residential one-to-four units — subprime | | 56,397 | | | 150,531 | | | 196,861 | | | 407,687 | |
| | All other | | 102,618 | | | 42,576 | | | 232,180 | | | 208,298 | |
| Repayments | | (1,526,563 | ) | | (927,653 | ) | | (4,006,496 | ) | | (2,820,902 | ) |
| | | | | | | | | | | | |
Loans originated for sale portfolio(b) | | 1,566,423 | | | 1,799,673 | | | 5,334,724 | | | 4,131,463 | |
| | | | | | | | | | | | |
Loans and mortgage-backed securities sold(c) | | (1,937,886 | ) | | (1,563,886 | ) | | (5,640,423 | ) | | (4,038,789 | ) |
| | | | | | | | | | | | |
Increase (decrease) in loans (including | | | | | | | | | | | | |
| mortgage-backed securities) | | (785,558 | ) | | 1,399,004 | | | (989,474 | ) | | 1,552,624 | |
| | | | | | | | | | | | |
Increase (decrease) in assets | | (788,183 | ) | | 1,387,990 | | | (818,784 | ) | | 1,413,388 | |
| | | | | | | | | | | | |
Increase (decrease) in deposits | | (287,384 | ) | | 366,374 | | | (630,282 | ) | | 437,366 | |
| | | | | | | | | | | | |
Increase (decrease) in borrowings | | (412,643 | ) | | 456,182 | | | (360,756 | ) | | 347,077 | |
|
Earnings Release and Table Listing
| September 30, | December 31, | September 30, |
| 2003 | 2002 | 2002 |
|
Capital ratios (Bank only) | | | | | | | | | |
Tangible | | 8.16 | % | | 6.92 | % | | 6.36 | % |
Core | | 8.16 | | | 6.92 | | | 6.36 | |
Risk-based | | 15.92 | | | 14.08 | | | 13.65 | |
| | | | | | | | | |
Book value per share | $ | 32.02 | | $ | 29.47 | | $ | 28.22 | |
| | | | | | | | | |
Number of branches including in-store locations | | 171 | | | 165 | | | 156 | |
|
(a) The amount of general and administrative expense incurred for each $1 of net interest income plus other income, except for income associated with real estate held for investment, litigation award and investment securities gains or losses.
(b) Includes loans purchased.
(c) Includes $2.7 million of non-mortgage commercial loans sold in the second quarter of 2003.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| |
| Three Months Ended September 30, |
|
|
| 2003 | | 2002 |
|
|
| | | | Average | | | | | | Average | |
| Average | | | Yield/ | | | Average | | | Yield/ | |
(Dollars in Thousands) | Balance | | Interest | Rate | | | Balance | | Interest | Rate | |
|
Average balance sheet data | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | |
| Loans | $ | 10,421,746 | $ | 119,990 | 4.61 | % | $ | 10,475,813 | $ | 150,987 | 5.77 | % |
| Mortgage-backed securities | | 1,660 | | 16 | 3.86 | | | 32,601 | | 287 | 3.52 | |
| Trading and investment securities | | 599,065 | | 3,693 | 2.45 | | | 387,325 | | 3,650 | 3.74 | |
|
| | Total interest-earning assets | | 11,022,471 | | 123,699 | 4.49 | | | 10,895,739 | | 154,924 | 5.69 | |
Non-interest-earning assets | | 393,442 | | | | | | 393,252 | | | | |
|
| Total assets | $ | 11,415,913 | | | | | $ | 11,288,991 | | | | |
|
Transaction accounts: | | | | | | | | | | | | |
| Non-interest-bearing checking | $ | 436,087 | $ | - | - | % | $ | 301,169 | $ | - | - | % |
| Interest-bearing checking(a) | | 456,023 | | 292 | 0.25 | | | 414,909 | | 323 | 0.31 | |
| Money market | | 133,736 | | 350 | 1.04 | | | 114,544 | | 487 | 1.69 | |
| Regular passbook | | 4,131,975 | | 12,874 | 1.24 | | | 3,222,127 | | 18,566 | 2.29 | |
|
| | Total transaction accounts | | 5,157,821 | | 13,516 | 1.04 | | | 4,052,749 | | 19,376 | 1.90 | |
Certificates of deposit | | 3,699,164 | | 24,494 | 2.63 | | | 4,766,674 | | 40,222 | 3.35 | |
|
| Total deposits | | 8,856,985 | | 38,010 | 1.70 | | | 8,819,423 | | 59,598 | 2.68 | |
Borrowings | | 1,322,837 | | 14,304 | 4.29 | | | 1,396,414 | | 15,314 | 4.35 | |
Capital securities | | 120,000 | | 3,040 | 10.14 | | | 120,000 | | 3,040 | 10.14 | |
|
| Total deposits, borrowings and capital securities | | 10,299,822 | | 55,354 | 2.13 | | | 10,335,837 | | 77,952 | 2.99 | |
Other liabilities | | 226,980 | | | | | | 169,689 | | | | |
Stockholders’ equity | | 889,111 | | | | | | 783,465 | | | | |
|
| Total liabilities and stockholders’ equity | $ | 11,415,913 | | | | | $ | 11,288,991 | | | | |
|
Net interest income/interest rate spread | | | $ | 68,345 | 2.36 | % | | | $ | 76,972 | 2.70 | % |
Excess of interest-earning assets over deposits, | | | | | | | | | | | | |
| borrowings and capital securities | $ | 722,649 | | | | | $ | 559,902 | | | | |
Effective interest rate spread | | | | | 2.48 | | | | | | 2.83 | |
|
| Nine Months Ended September 30, | |
|
|
|
Interest-earning assets: | | | | | | | | | | | | |
| Loans | $ | 10,566,127 | $ | 393,363 | 4.96 | % | $ | 10,161,564 | $ | 459,712 | 6.03 | % |
| Mortgage-backed securities | | 1,825 | | 51 | 3.73 | | | 73,283 | | 2,503 | 4.55 | |
| Trading and investment securities | | 543,076 | | 11,856 | 2.92 | | | 412,504 | | 12,532 | 4.06 | |
|
| | Total interest-earning assets | | 11,111,028 | | 405,270 | 4.86 | | | 10,647,351 | | 474,747 | 5.95 | |
Non-interest-earning assets | | 401,758 | | | | | | 394,628 | | | | |
|
| Total assets | $ | 11,512,786 | | | | | $ | 11,041,979 | | | | |
|
Transaction accounts: | | | | | | | | | | | | |
| Non-interest-bearing checking | $ | 407,452 | $ | - | - | % | $ | 293,964 | $ | - | - | % |
| Interest-bearing checking(a) | | 440,581 | | 874 | 0.27 | | | 421,894 | | 1,065 | 0.34 | |
| Money market | | 128,364 | | 1,119 | 1.17 | | | 112,830 | | 1,497 | 1.77 | |
| Regular passbook | | 3,931,071 | | 40,957 | 1.39 | | | 2,875,959 | | 52,502 | 2.44 | |
|
| | Total transaction accounts | | 4,907,468 | | 42,950 | 1.17 | | | 3,704,647 | | 55,064 | 1.99 | |
Certificates of deposit | | 3,998,283 | | 85,279 | 2.85 | | | 4,929,779 | | 133,290 | 3.61 | |
|
| Total deposits | | 8,905,751 | | 128,229 | 1.93 | | | 8,634,426 | | 188,354 | 2.92 | |
Borrowings | | 1,435,378 | | 44,280 | 4.12 | | | 1,373,979 | | 45,226 | 4.40 | |
Capital securities | | 120,000 | | 9,122 | 10.14 | | | 120,000 | | 9,122 | 10.14 | |
|
| Total deposits, borrowings and capital securities | | 10,461,129 | | 181,631 | 2.32 | | | 10,128,405 | | 242,702 | 3.20 | |
Other liabilities | | 189,872 | | | | | | 144,514 | | | | |
Stockholders’ equity | | 861,785 | | | | | | 769,060 | | | | |
|
| Total liabilities and stockholders’ equity | $ | 11,512,786 | | | | | $ | 11,041,979 | | | | |
|
Net interest income/interest rate spread | | | $ | 223,639 | 2.54 | % | | | $ | 232,045 | 2.75 | % |
Excess of interest-earning assets over deposits, | | | | | | | | | | | | |
| borrowings and capital securities | $ | 649,899 | | | | | $ | 518,946 | | | | |
Effective interest rate spread | | | | | 2.68 | | | | | | 2.91 | |
|
(a) Included amounts swept into money market deposit accounts.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| Three Months Ended | Nine Months Ended |
| September 30, | September 30, |
|
|
(In Thousands) | 2003 | 2002 | 2003 | 2002 |
|
Loan and deposit related fees | | | | | | | | | | | | |
Loan related fees: | | | | | | | | | | | | |
| Prepayment fees | $ | 4,756 | | $ | 3,523 | | $ | 12,460 | | $ | 12,349 | |
| Other fees | | 2,863 | | | 2,366 | | | 8,362 | | | 6,525 | |
Deposit related fees: | | | | | | | | | | | | |
| Automated teller machine fees | | 2,472 | | | 2,051 | | | 6,738 | | | 5,262 | |
| Other fees | | 4,314 | | | 3,908 | | | 12,472 | | | 10,626 | |
|
| | Total loan and deposit related fees | $ | 14,405 | | $ | 11,848 | | $ | 40,032 | | $ | 34,762 | |
|
Net gains (losses) on sales of loans and mortgage-backed | | | | | | | | | | | | |
| securities | | | | | | | | | | | | |
Mortgage servicing rights | $ | 21,660 | | $ | 9,304 | | $ | 52,019 | | $ | 34,457 | |
All other components excluding SFAS 133 | | 686 | | | (7,612 | ) | | 5,817 | | | (14,142 | ) |
SFAS 133 | | 1,121 | | | (2,663 | ) | | (1,954 | ) | | 1,811 | |
|
| Total net gains (losses) on sales of loans and | | | | | | | | | | | | |
| | mortgage-backed securities | $ | 23,467 | | $ | (971 | ) | $ | 55,882 | | $ | 22,126 | |
|
Secondary marketing gain excluding SFAS 133 as a | | | | | | | | | | | | |
| percentgage of associated sales | | 1.15 | % | | 0.10 | % | | 1.03 | % | | 0.51 | % |
|
Loan servicing income (loss), net | | | | | | | | | | | | |
Net cash servicing fees | $ | 5,401 | | $ | 4,382 | | $ | 15,534 | | $ | 11,856 | |
Payoff and curtailment interest cost(a) | | (3,869 | ) | | (1,182 | ) | | (10,014 | ) | | (2,619 | ) |
Amortization of MSRs | | (5,051 | ) | | (4,120 | ) | | (19,773 | ) | | (10,289 | ) |
(Provision for) reduction of impairment of MSRs | | 5,069 | | | (18,043 | ) | | (19,575 | ) | | (34,116 | ) |
|
| Total loan servicing income (loss), net | $ | 1,550 | | $ | (18,963 | ) | $ | (33,828 | ) | $ | (35,168 | ) |
|
Mortgage servicing rights activity | | | | | | | | | | | | |
Gross balance at beginning of period | $ | 89,948 | | $ | 81,100 | | $ | 90,584 | | $ | 65,630 | |
Additions | | 21,660 | | | 9,304 | | | 52,019 | | | 34,457 | |
Amortization | | (5,051 | ) | | (4,120 | ) | | (19,773 | ) | | (10,289 | ) |
Sales | | - | | | - | | | - | | | (35 | ) |
Impairment write-down | | (13,892 | ) | | (2,579 | ) | | (30,165 | ) | | (6,058 | ) |
|
| Gross balance at end of period | | 92,665 | | | 83,705 | | | 92,665 | | | 83,705 | |
|
Allowance balance at beginning of period | | 41,226 | | | 21,329 | | | 32,855 | | | 8,735 | |
Provision for (reduction of) impairment | | (5,069 | ) | | 18,043 | | | 19,575 | | | 34,116 | |
Impairment write-down | | (13,892 | ) | | (2,579 | ) | | (30,165 | ) | | (6,058 | ) |
|
| Allowance balance at end of period | | 22,265 | | | 36,793 | | | 22,265 | | | 36,793 | |
|
| | Total mortgage servicing rights, net | $ | 70,400 | | $ | 46,912 | | $ | 70,400 | | $ | 46,912 | |
|
As a percentage of associated mortgage loans | | 0.78 | % | | 0.64 | % | | 0.78 | % | | 0.64 | % |
Estimated fair value(b) | $ | 70,401 | | $ | 46,986 | | $ | 70,401 | | $ | 46,986 | |
Weighted average expected life (in months) | | 50 | | | 39 | | | 50 | | | 39 | |
Custodial account earnings rate | | 1.49 | % | | 2.06 | % | | 1.49 | % | | 2.06 | % |
Weighted average discount rate | | 8.91 | | | 8.19 | | | 8.91 | | | 8.19 | |
|
Earnings Release and Table Listing
| September 30, | December 31, | September 30, |
(Dollars in Thousands) | 2003 | 2002 | 2002 |
|
Mortgage loans serviced for others | | | | | | | | | |
Total | $ | 9,125,469 | | $ | 8,316,236 | | $ | 7,502,157 | |
With capitalized mortgage servicing rights: (b) | | | | | | | | | |
| Amount | | 9,068,209 | | | 8,036,393 | | | 7,355,700 | |
| Weighted average interest rate | | 5.87 | % | | 6.51 | % | | 6.71 | % |
|
Custodial escrow balances | $ | 25,732 | | $ | 15,243 | | $ | 21,628 | |
|
(a) Represents contractual obligation to pay interest at the borrower’s loan rate from the date the loan is repaid until the funds are remitted to the investor. This does not include the benefit of the use of repaid loan funds to reduce borrowings and its associated interest expense, which is reported in net interest income.
(b) The estimated fair value may exceed book value for certain asset strata and excluded loans sold or securitized prior to 1996 and loans temporarily sub-serviced without capitalized mortgage servicing rights.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| September 30, | December 31, | September 30, |
(Dollars in Thousands) | 2003 | 2002 | 2002 |
|
Loans held for investment | | | | | | | | | |
Loans secured by real estate: | | | | | | | | | |
| Residential one-to-four units | $ | 8,261,890 | | $ | 8,647,197 | | $ | 8,285,998 | |
| Residential one-to-four units — subprime | | 1,050,209 | | | 1,386,113 | | | 1,420,081 | |
|
| | Total residential one-to-four units | | 9,312,099 | | | 10,033,310 | | | 9,706,079 | |
| Residential five or more units | | 81,991 | | | 10,640 | | | 8,430 | |
| Commercial real estate | | 52,440 | | | 71,415 | | | 77,665 | |
| Construction | | 90,233 | | | 103,547 | | | 110,125 | |
| Land | | 18,931 | | | 53,538 | | | 53,885 | |
Non-mortgage: | | | | | | | | | |
| Commercial | | 5,235 | | | 15,021 | | | 17,792 | |
| Automobile | | 5,085 | | | 11,641 | | | 14,475 | |
| Other consumer | | 70,593 | | | 56,782 | | | 54,779 | |
|
| | Total loans held for investment | | 9,636,607 | | | 10,355,894 | | | 10,043,230 | |
Increase (decrease) for: | | | | | | | | | |
| Undisbursed loan funds and net deferred costs and premiums | | 44,604 | | | 1,742 | | | (7,930 | ) |
| Allowance for losses | | (30,770 | ) | | (34,999 | ) | | (34,880 | ) |
|
| | Total loans held for investment, net | $ | 9,650,441 | | $ | 10,322,637 | | $ | 10,000,420 | |
|
| | | | | | | | | |
Loans held for sale, net | | | | | | | | | |
Residential one-to-four units | $ | 335,594 | | $ | 649,964 | | $ | 662,292 | |
Other consumer | | 582 | | | - | | | - | |
Capitalized basis adjustment(a) | | (739 | ) | | 2,088 | | | 3,295 | |
|
| Total loans held for sale | $ | 335,437 | | $ | 652,052 | | $ | 665,587 | |
|
| | | | | | | | | |
Delinquent loans | | | | | | | | | |
30-59 days | $ | 20,590 | | $ | 28,998 | | $ | 29,714 | |
60-89 days | | 10,108 | | | 14,070 | | | 18,299 | |
90+ days(b) | | 39,796 | | | 51,845 | | | 48,585 | |
|
| Total delinquent loans | $ | 70,494 | | $ | 94,913 | | $ | 96,598 | |
|
Delinquencies as a percentage of total loans | | 0.71 | % | | 0.86 | % | | 0.90 | % |
|
| | | | | | | | | |
Non-performing assets | | | | | | | | | |
Non-accrual loans: | | | | | | | | | |
| Residential one-to-four units | $ | 32,430 | | $ | 34,504 | | $ | 36,068 | |
| Residential one-to-four units — subprime | | 22,101 | | | 32,263 | | | 36,304 | |
| Other | | 576 | | | 681 | | | 823 | |
|
| | Total non-accrual loans | | 55,107 | | | 67,448 | | | 73,195 | |
Troubled debt restructure — below market rate(c) | | - | | | - | | | 203 | |
Real estate acquired in settlement of loans | | 7,436 | | | 12,360 | | | 15,441 | |
Repossessed automobiles | | 15 | | | 6 | | | 15 | |
|
| Total non-performing assets | $ | 62,558 | | $ | 79,814 | | $ | 88,854 | |
|
Non-performing assets as a percentage of total assets | | 0.56 | % | | 0.67 | % | | 0.71 | % |
|
(a) Reflects the change in fair value of the rate lock derivative from the date of commitment to the date of funding.
(b) All 90 day or greater delinquencies are on non-accrual status and reported as part of non-performing assets.
(c) Represents one residential one-to-four unit loan.
.Note: Certain prior period amounts have been reclassified to conform to the current presentation.