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 Operating Officer
Chief Financial Officer
(949) 509-4440 |
|
DOWNEY ANNOUNCES FOURTH QUARTER EARNINGS
Newport Beach, California — January 18, 2005 — Downey Financial Corp. (NYSE: DSL) reported that net income for the fourth quarter of 2004 totaled $46.4 million or $1.66 per share on a diluted basis, up 95% from $23.8 million or $0.85 per share in the year-ago fourth quarter.
Net income for 2004 totaled $107.7 million or $3.85 per share on a diluted basis, up 6% from last year’s $101.7 million or $3.64 per share. A key contributor to the increase between years was a lower effective tax rate, due to a $5.6 million reduction in the current year federal income tax expense associated with the settlement of prior-year tax returns. Pre-tax income was little changed between years, up $0.7 million, primarily reflecting:
- A $29.3 million or 10% growth in net interest income due to growth in average interest-earning assets;
- A $7.8 million favorable change in loan servicing income;
- A $7.5 million increase in loan and deposit related fees; and
- A $4.1 million increase in income from real estate and joint ventures held for investment due to higher gains from sales.
Those favorable pre-tax factors were partially offset by:
- A $21.8 million or 10% increase in general and administrative expense;
- A $7.0 million decline in net gains on sales of loans and mortgage-backed securities due primarily to a lower gain per dollar of loan sold;
- A $6.6 million unfavorable change in provision for loan losses primarily reflecting growth in the loan portfolio;
- A $5.7 million unfavorable change associated with securities gains/losses, virtually all of which related to a partial economic hedge against value changes of mortgage servicing rights; and
- A $4.1 million loss on extinguishment of debt, which represented the recognition in 2004 of deferred issuance costs associated with the redemption of $124 million of 10% junior subordinated debentures prior to their maturity. This debt was replaced with lower cost senior debt.
Daniel D. Rosenthal, President and Chief Executive Officer, commented, "We ended 2004 with a significantly higher level of assets than year-end 2003 due to record loan originations, and we continue to have a strong capital position. During the fourth quarter, we completed the previously announced sale of approximately 80% of the loans we service for others. Those sales are expected to reduce our earnings
volatility, since the amount of mortgage servicing rights we now own is significantly lower. Given that reduced risk, we sold the securities established as a partial economic hedge against value changes of our mortgage servicing rights. In addition, we continue to originate more adjustable rate mortgages than we need to satisfy the growth of our balance sheet. We will continue to do so as long as we can profitably sell them."
Net Interest Income
Net interest income totaled $90.0 million in the current quarter, up $24.7 million or 38% between fourth quarters. The increase reflected higher interest-earning assets, which averaged $15.315 billion in the current quarter, up 41% from a year ago. The effective interest rate spread averaged 2.35% in the current quarter, down from 2.40% a year ago. The decline between fourth quarters was due to the yield on interest-earning assets not rising as much as the cost of funds.
For 2004, net interest income totaled $317.9 million, up $29.3 million or 10% from a year ago.
Provision for Loan Losses
During the current quarter, $1.6 million of provision for loan losses was reversed, compared to a $0.3 million reversal in the year-ago fourth quarter. The current quarter reversal primarily reflected a recovery of a previous period charge-off of a commercial real estate loan that was repaid, whereas the year-ago reversal primarily reflected an improvement in credit quality. The allowance for loan losses was $35 million at December 31, 2004, compared to $30 million at year-end 2003. Net recoveries totaled $1.7 million in the current quarter, compared to net charge-offs of $0.2 million in the year-ago quarter.
For 2004, provision for loan losses totaled $2.9 million and net recoveries were $1.5 million. That compares to a $3.7 million reversal and net charge-offs of $1.0 million a year ago.
Other Income
Other income totaled $48.0 million in the current quarter, up $21.2 million from a year ago. Contributing to the increase between fourth quarters was:
- A $17.2 million increase in net gains on sales of loans and mortgage-backed securities, due to higher loan sales and a higher gain per dollar of loan sold. The current quarter included a SFAS 133 loss of $5.0 million, whereas the year-ago quarter included a $1.0 million SFAS 133 gain. Excluding the impact of SFAS 133, a gain equal to $27.8 million or 0.87% on sales of $3.198 billion was realized, compared to the year-ago gain of $4.5 million or 0.48% on secondary market sales of $941 million. Included in the current quarter sales was the previously announced sale of approximately $1.0 billion of seasoned adjustable rate residential one-to-four unit loans that were held for investment. Those loans were tied to the 12-month moving average of annual yields on actively traded U.S. Treasury securities adjusted to a constant maturity of one year ("MTA") that are expected to be replaced with higher yielding adjustable rate product. While the sale temporarily results in assets growing more slowly than growth in retained earnings, asset growth is expected to grow more in line with the growth in retained earnings, to include the replacement of the MTA loans that were sold, by the end of the first quarter of 2005. Initially, the sale will reduce net interest income until the loans are replaced. However, it is expected a breakeven point for the lost net interest income will occur by mid-year 2005, when considering the gain from this sale. After mid-2005, overall profits should be enhanced from the higher yielding loans.
- A $4.8 million increase in loan and deposit related fees.
- A $4.6 million increase in income from real estate and joint ventures held for investment, as gains totaled $4.9 million in the current quarter compared to $0.4 million a year ago.
- A $3.1 million increase in securities gains/losses due to the gain realized in the current quarter from the sale of securities associated with the partial economic hedge against value changes of mortgage servicing rights.
Those favorable items were partially offset by a $8.6 million unfavorable change in loan servicing income, which was primarily due to the unfavorable change in the valuation allowance for mortgage servicing rights. The current quarter included a $1.5 million addition for impairment, whereas the year-ago quarter included a $7.7 million reduction of impairment. At December 31, 2004, mortgage loans serviced for others totaled $6.673 billion, of which $4.542 billion represented loans sub-serviced without mortgage servicing rights. At year-end 2004, mortgage servicing rights, net of a $3 million valuation allowance, totaled $18 million or 0.86% of the $2.100 billion of associated loans serviced for others.
For 2004, other income totaled $91.4 million, up $0.4 million from a year ago.
Operating Expense
Operating expense totaled $59.2 million in the current quarter, up $8.0 million or 16% from the fourth quarter of 2003, due primarily to higher general and administrative expense. The increase was primarily associated with a rise of $5.3 million or 16% in salaries and related costs.
For 2004, operating expense totaled $229.5 million, up $22.4 million or 11% from a year ago.
Assets, Loan Originations and Deposits
At December 31, 2004, assets totaled $15.649 billion, up $4.002 billion or 34% from December 31, 2003, and up slightly from the previous quarter end. While portfolio originations exceeded loan payoffs during the quarter, that growth was essentially offset by the previously mentioned sale of approximately $1.0 billion of loans held for investment.
Loan originations (including purchases) totaled a record $4.590 billion in the current quarter, up from $2.609 billion in the fourth quarter of 2003. Loans originated for sale increased $1.633 billion to $2.522 billion, while single family loans originated for portfolio increased by $352 million to $1.927 billion. Of the current quarter total originated for portfolio, $218 million represented subprime credits. At quarter end, the subprime portfolio totaled $1.254 billion, with an average loan-to-value ratio at origination of 71% and, of the total, 95% represented "Alt. A and A-" credits. In addition to single family loans, $141 million of other loans were originated in the quarter.
Deposits totaled $9.658 billion at December 31, 2004, up $1.364 billion or 16% since year-end 2003. During the quarter:
- Three traditional branches were opened, two of which replaced in-store branches closed during the second quarter and the third, a new branch in Arizona; and
- Two in-store branches were closed due to a decision by the grocery company to close the stores in which they were located. The deposits in these branches totaled $8 million and were moved to other branch locations.
This brings the total number of branches to 169, of which 165 are in California and four are in Arizona. At quarter end, the average deposit size of our 76 traditional branches was $103 million, while the average deposit size of our 93 in-store branches was $19 million.
Non-Performing Assets
Non-performing assets declined $5 million during the quarter to $34 million or 0.22% of total assets, compared to 0.42% at year-end 2003. The decline occurred in both prime and subprime single family credits.
Regulatory Capital Ratios
At December 31, 2004, Downey Financial Corp.’s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 7.09% and a risk-based capital ratio of 13.71%. 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 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, Chief Operating Officer and Chief Financial Officer at (949) 509-4440.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, |
|
|
(Dollars in Thousands, Except Per Share Data) | 2004 | 2003 |
|
Assets | | | | | | |
Cash | $ | 119,502 | | $ | 111,667 | |
Federal funds | | - | | | 1,500 | |
|
| Cash and cash equivalents | | 119,502 | | | 113,167 | |
U.S. Treasury securities, agency obligations and other investment securities | | | | | | |
| available for sale, at fair value | | 497,009 | | | 690,347 | |
Loans held for sale, at lower of cost or fair value | | 1,118,475 | | | 279,657 | |
Mortgage-backed securities available for sale, at fair value | | 304 | | | 334 | |
Loans receivable held for investment | | 13,423,999 | | | 10,116,519 | |
Investments in real estate and joint ventures | | 55,411 | | | 35,716 | |
Real estate acquired in settlement of loans | | 2,555 | | | 5,803 | |
Premises and equipment | | 106,238 | | | 110,316 | |
Federal Home Loan Bank stock, at cost | | 243,613 | | | 123,089 | |
Investment in Downey Financial Capital Trust I | | - | | | 3,711 | |
Mortgage servicing rights, net | | 17,964 | | | 82,175 | |
Other assets | | 63,738 | | | 85,146 | |
|
| $ | 15,648,808 | | $ | 11,645,980 | |
|
Liabilities and Stockholders’ Equity | | | | | | |
Deposits | $ | 9,657,978 | | $ | 8,293,758 | |
Federal Home Loan Bank advances | | 4,559,622 | | | 2,125,150 | |
Real estate notes | | - | | | 4,161 | |
Senior notes | | 197,924 | | | - | |
Junior subordinated debentures | | - | | | 123,711 | |
Accounts payable and accrued liabilities | | 108,217 | | | 63,584 | |
Deferred income taxes | | 117,416 | | | 118,598 | |
|
| Total liabilities | | 14,641,157 | | | 10,728,962 | |
|
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 both December 31, 2004 and 2003; | | | | | | |
| outstanding 27,853,783 shares at December 31, 2004 and 27,928,722 | | | | | | |
| shares at December 31, 2003 | | 282 | | | 282 | |
Additional paid-in capital | | 93,792 | | | 93,792 | |
Accumulated other comprehensive income | | 318 | | | 807 | |
Retained earnings | | 930,051 | | | 834,307 | |
Treasury stock, at cost, 381,239 shares at December 31, 2004 and | | | | | | |
| 306,300 shares at December 31, 2003 | | (16,792 | ) | | (12,170 | ) |
|
| Total stockholders’ equity | | 1,007,651 | | | 917,018 | |
|
| $ | 15,648,808 | | $ | 11,645,980 | |
|
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | Twelve Months Ended |
| December 31, | December 31, |
|
|
(Dollars in Thousands, Except Per Share Data) | 2004 | 2003 | 2004 | 2003 |
|
Interest income | | | | | | | | | | | | |
Loans receivable | $ | 159,837 | | $ | 111,117 | | $ | 540,138 | | $ | 504,480 | |
U.S. Treasury securities and agency obligations | | 4,589 | | | 4,982 | | | 20,750 | | | 12,502 | |
Mortgage-backed securities | | 3 | | | 10 | | | 12 | | | 61 | |
Other investments | | 2,043 | | | 1,071 | | | 6,810 | | | 5,407 | |
|
| Total interest income | | 166,472 | | | 117,180 | | | 567,710 | | | 522,450 | |
|
Interest expense | | | | | | | | | | | | |
Deposits | | 44,281 | | | 33,596 | | | 152,258 | | | 161,825 | |
Federal Home Loan Bank advances and other borrowings | | 28,913 | | | 15,197 | | | 83,651 | | | 59,477 | |
Senior notes | | 3,295 | | | - | | | 6,881 | | | - | |
Junior subordinated debentures | | - | | | 3,134 | | | 7,033 | | | 12,535 | |
|
| Total interest expense | | 76,489 | | | 51,927 | | | 249,823 | | | 233,837 | |
|
Net interest income | | 89,983 | | | 65,253 | | | 317,887 | | | 288,613 | |
Provision for (reduction of) loan losses | | (1,553 | ) | | (281 | ) | | 2,895 | | | (3,718 | ) |
|
| Net interest income after provision for (reduction of) loan losses | | 91,536 | | | 65,534 | | | 314,992 | | | 292,331 | |
|
Other income, net | | | | | | | | | | | | |
Loan and deposit related fees | | 17,836 | | | 13,044 | | | 60,539 | | | 53,076 | |
Real estate and joint ventures held for investment, net | | 5,563 | | | 959 | | | 13,902 | | | 9,835 | |
Secondary marketing activities: | | | | | | | | | | | | |
| Loan servicing income (loss), net | | (1,876 | ) | | 6,768 | | | (19,225 | ) | | (27,060 | ) |
| Net gains on sales of loans and mortgage-backed securities | | 22,759 | | | 5,554 | | | 54,443 | | | 61,436 | |
| Net gains on sales of mortgage servicing rights | | 616 | | | - | | | 616 | | | 23 | |
Net losses on trading securities | | - | | | - | | | - | | | (10,449 | ) |
Net gains (losses) on sales of investment securities | | 3,056 | | | - | | | (16,103 | ) | | 8 | |
Litigation award | | - | | | 134 | | | - | | | 2,851 | |
Loss on extinguishment of debt | | - | | | - | | | (4,111 | ) | | - | |
Other | | 76 | | | 359 | | | 1,324 | | | 1,222 | |
|
| Total other income, net | | 48,030 | | | 26,818 | | | 91,385 | | | 90,942 | |
|
Operating expense | | | | | | | | | | | | |
Salaries and related costs | | 38,448 | | | 33,144 | | | 148,221 | | | 134,610 | |
Premises and equipment costs | | 8,801 | | | 8,286 | | | 33,980 | | | 32,261 | |
Advertising expense | | 1,158 | | | 1,068 | | | 5,525 | | | 3,712 | |
SAIF insurance premiums and regulatory assessments | | 825 | | | 762 | | | 3,151 | | | 3,205 | |
Professional fees | | 717 | | | 539 | | | 1,828 | | | 2,383 | |
Other general and administrative expense | | 9,238 | | | 8,106 | | | 37,061 | | | 31,828 | |
|
| Total general and administrative expense | | 59,187 | | | 51,905 | | | 229,766 | | | 207,999 | |
Net operation of real estate acquired in settlement of loans | | 17 | | | (739 | ) | | (256 | ) | | (929 | ) |
|
| Total operating expense | | 59,204 | | | 51,166 | | | 229,510 | | | 207,070 | |
|
Income before income taxes | | 80,362 | | | 41,186 | | | 176,867 | | | 176,203 | |
Income taxes | | 33,943 | | | 17,428 | | | 69,205 | | | 74,462 | |
|
| Net income | $ | 46,419 | | $ | 23,758 | | $ | 107,662 | | $ | 101,741 | |
|
PER SHARE INFORMATION | | | | | | | | | | | | |
Basic | $ | 1.67 | | $ | 0.85 | | $ | 3.86 | | $ | 3.64 | |
|
Diluted | $ | 1.66 | | $ | 0.85 | | $ | 3.85 | | $ | 3.64 | |
|
Cash dividends declared and paid | $ | 0.10 | | $ | 0.09 | | $ | 0.40 | | $ | 0.36 | |
|
Weighted average diluted shares outstanding | 27,880,352 | | 27,967,760 | | 27,948,179 | | 27,963,449 | |
|
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
| Three Months Ended | Twelve Months Ended |
| December 31, | December 31, |
|
|
(Dollars in Thousands) | 2004 | 2003 | 2004 | 2003 |
|
Net income by business segment | | | | | | | | | | | | |
Banking | $ | 43,103 | | $ | 23,188 | | $ | 99,478 | | $ | 95,459 | |
Real estate investment | | 3,316 | | | 570 | | | 8,184 | | | 6,282 | |
|
| Total net income | $ | 46,419 | | $ | 23,758 | | $ | 107,662 | | $ | 101,741 | |
|
| | | | | | | | | | | | |
Selected financial ratios | | | | | | | | | | | | |
Effective interest rate spread | | 2.35 | % | | 2.40 | % | | 2.34 | % | | 2.61 | % |
Efficiency ratio(a) | | 44.69 | | | 57.05 | | | 57.52 | | | 56.70 | |
Return on average assets | | 1.18 | | | 0.84 | | | 0.77 | | | 0.89 | |
Return on average equity | | 18.84 | | | 10.48 | | | 11.37 | | | 11.65 | |
|
| | | | | | | | | | | | |
Asset and liability activity | | | | | | | | | | | | |
Loans for investment portfolio: (b) | | | | | | | | | | | | |
| Originations: | | | | | | | | | | | | |
| | Residential one-to-four units | $ | 1,708,775 | | $ | 1,453,333 | | $ | 7,464,930 | | $ | 4,336,421 | |
| | Residential one-to-four units — subprime | | 218,036 | | | 121,119 | | | 827,517 | | | 317,980 | |
| | All other | | 141,238 | | | 145,175 | | | 628,715 | | | 377,355 | |
| Repayments | | (1,088,690 | ) | | (1,205,610 | ) | | (4,570,630 | ) | | (5,212,106 | ) |
| | | | | | | | | | | | |
Loans originated for sale portfolio(b) | | 2,522,101 | | | 889,144 | | | 6,783,718 | | | 6,223,868 | |
| | | | | | | | | | | | |
Loans and mortgage-backed securities sold(c) | | (3,197,501 | ) | | (941,433 | ) | | (6,886,502 | ) | | (6,581,856 | ) |
| | | | | | | | | | | | |
Increase (decrease) in loans (including | | | | | | | | | | | | |
| mortgage-backed securities) | | 285,404 | | | 409,042 | | | 4,146,268 | | | (580,432 | ) |
| | | | | | | | | | | | |
Increase (decrease) in assets | | 9,344 | | | 482,886 | | | 4,002,828 | | | (335,898 | ) |
| | | | | | | | | | | | |
Increase (decrease) in deposits | | 106,645 | | | (314,310 | ) | | 1,364,220 | | | (944,592 | ) |
| | | | | | | | | | | | |
Increase (decrease) in borrowings | | (110,944 | ) | | 865,983 | | | 2,504,524 | | | 505,227 | |
|
Earnings Release and Table Listing
| December 31, | September 30, | December 31, |
| 2004 | 2004 | 2003 |
|
Capital ratios (Bank only) | | | | | | | | | |
Tangible | | 7.09 | % | | 6.94 | % | | 7.96 | % |
Core | | 7.09 | | | 6.94 | | | 7.96 | |
Risk-based | | 13.71 | | | 13.62 | | | 15.55 | |
| | | | | | | | | |
Book value per share | $ | 36.18 | | $ | 34.67 | | $ | 32.83 | |
| | | | | | | | | |
Number of branches including in-store locations | | 169 | | | 168 | | | 172 | |
|
(a) The amount of general and administrative expense expressed as a percentage of net interest income plus other income, excluding income associated with real estate held for investment, loss on extinguishment of debt and litigation award.
(b) Includes loans purchased.
(c) Includes $2.7 million of non-mortgage commercial loans in second quarter of 2003.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| Three Months Ended December 31, |
|
|
| 2004 | | 2003 |
|
|
| Average | | | Average | | Average | | | Average |
(Dollars in Thousands) | Balance | | Interest | Yield/Rate | | Balance | | Interest | Yield/Rate |
|
Average balance sheet data | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | |
| Loans | $ | 14,567,425 | $ | 159,837 | 4.39 | % | $ | 10,084,352 | $ | 111,117 | 4.41 | % |
| Mortgage-backed securities | | 312 | | 3 | 3.85 | | | 1,384 | | 10 | 2.89 | |
| Investment and trading securities(a) | | 747,709 | | 6,632 | 3.53 | | | 803,792 | | 6,053 | 2.99 | |
|
| | Total interest-earning assets | | 15,315,446 | | 166,472 | 4.35 | | | 10,889,528 | | 117,180 | 4.30 | |
Non-interest-earning assets | | 399,435 | | | | | | 396,662 | | | | |
|
| Total assets | $ | 15,714,881 | | | | | $ | 11,286,190 | | | | |
|
Transaction accounts: | | | | | | | | | | | | |
| Non-interest-bearing checking | $ | 569,859 | $ | - | - | % | $ | 441,624 | $ | - | - | % |
| Interest-bearing checking(b) | | 538,127 | | 499 | 0.37 | | | 464,583 | | 290 | 0.25 | |
| Money market | | 154,755 | | 409 | 1.05 | | | 139,445 | | 367 | 1.04 | |
| Regular passbook | | 3,044,570 | | 8,256 | 1.08 | | | 4,041,057 | | 12,154 | 1.19 | |
|
| | Total transaction accounts | | 4,307,311 | | 9,164 | 0.85 | | | 5,086,709 | | 12,811 | 1.00 | |
Certificates of deposit | | 5,368,624 | | 35,117 | 2.60 | | | 3,347,441 | | 20,785 | 2.46 | |
|
| Total deposits | | 9,675,935 | | 44,281 | 1.82 | | | 8,434,150 | | 33,596 | 1.58 | |
FHLB advances and other borrowings(c) | | 4,595,267 | | 28,913 | 2.50 | | | 1,662,003 | | 15,197 | 3.63 | |
Senior notes and junior subordinated debentures(d) | | 197,909 | | 3,295 | 6.66 | | | 123,711 | | 3,134 | 10.13 | |
|
| Total deposits and borrowings | | 14,469,111 | | 76,489 | 2.10 | | | 10,219,864 | | 51,927 | 2.02 | |
Other liabilities | | 260,351 | | | | | | 159,479 | | | | |
Stockholders’ equity | | 985,419 | | | | | | 906,847 | | | | |
|
| Total liabilities and stockholders’ equity | $ | 15,714,881 | | | | | $ | 11,286,190 | | | | |
|
Net interest income/interest rate spread | | | $ | 89,983 | 2.25 | % | | | $ | 65,253 | 2.28 | % |
Excess of interest-earning assets over deposits and borrowings | $ | 846,335 | | | | | $ | 669,664 | | | | |
Effective interest rate spread | | | | | 2.35 | | | | | | 2.40 | |
|
| Twelve Months Ended December 31, | |
|
Interest-earning assets: | | | | | | | | | | | | |
| Loans | $ | 12,791,590 | $ | 540,138 | 4.22 | % | $ | 10,445,684 | $ | 504,480 | 4.83 | % |
| Mortgage-backed securities | | 322 | | 12 | 3.73 | | | 1,714 | | 61 | 3.56 | |
| Investment and trading securities(a) | | 770,190 | | 27,560 | 3.58 | | | 608,256 | | 17,909 | 2.94 | |
|
| | Total interest-earning assets | | 13,562,102 | | 567,710 | 4.19 | | | 11,055,654 | | 522,450 | 4.73 | |
Non-interest-earning assets | | 409,717 | | | | | | 403,302 | | | | |
|
| Total assets | $ | 13,971,819 | | | | | $ | 11,458,956 | | | | |
|
Transaction accounts: | | | | | | | | | | | | |
| Non-interest-bearing checking | $ | 503,432 | $ | - | - | % | $ | 415,995 | $ | - | - | % |
| Interest-bearing checking(b) | | 537,295 | | 2,007 | 0.37 | | | 446,582 | | 1,164 | 0.26 | |
| Money market | | 146,806 | | 1,539 | 1.05 | | | 131,134 | | 1,485 | 1.13 | |
| Regular passbook | | 3,528,345 | | 38,458 | 1.09 | | | 3,958,567 | | 53,109 | 1.34 | |
|
| | Total transaction accounts | | 4,715,878 | | 42,004 | 0.89 | | | 4,952,278 | | 55,758 | 1.13 | |
Certificates of deposit | | 4,381,983 | | 110,254 | 2.52 | | | 3,835,573 | | 106,067 | 2.77 | |
|
| Total deposits | | 9,097,861 | | 152,258 | 1.67 | | | 8,787,851 | | 161,825 | 1.84 | |
FHLB advances and other borrowings(c) | | 3,555,454 | | 83,651 | 2.35 | | | 1,492,034 | | 59,477 | 3.99 | |
Senior notes and junior subordinated debentures(d) | | 172,571 | | 13,914 | 8.06 | | | 123,711 | | 12,535 | 10.13 | |
|
| Total deposits and borrowings | | 12,825,886 | | 249,823 | 1.95 | | | 10,403,596 | | 233,837 | 2.25 | |
Other liabilities | | 198,780 | | | | | | 182,309 | | | | |
Stockholders’ equity | | 947,153 | | | | | | 873,051 | | | | |
|
| Total liabilities and stockholders’ equity | $ | 13,971,819 | | | | | $ | 11,458,956 | | | | |
|
Net interest income/interest rate spread | | | $ | 317,887 | 2.24 | % | | | $ | 288,613 | 2.48 | % |
Excess of interest-earning assets over deposits and borrowings | $ | 736,216 | | | | | $ | 652,058 | | | | |
Effective interest rate spread | | | | | 2.34 | | | | | | 2.61 | |
|
(a) Yields for securities available for sale are calculated using historical cost balances and do not give effect to changes in fair value that are reflected as a component of stockholders’ equity.
(b) Included amounts swept into money market deposit accounts.
(c) Starting in the first quarter of 2004, the impact of interest rate swap contracts was included, with notional amounts totaling $430 million of receive-fixed, pay-3-month LIBOR variable interest, which contracts serve as a permitted hedge against a portion of our FHLB advances.
(d) In June 2004, we issued $200 million of 6.5% 10-year senior notes. In July 2004, we redeemed our junior subordinated debentures before their maturity.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| Three Months Ended | Twelve Months Ended |
| December 31, | December 31, |
|
|
(Dollars in Thousands) | 2004 | 2003 | 2004 | 2003 |
|
Loan and deposit related fees | | | | | | | | | | | | |
Loan related fees: | | | | | | | | | | | | |
| Prepayment fees | $ | 8,284 | | $ | 4,320 | | $ | 23,608 | | $ | 16,780 | |
| Other fees | | 2,152 | | | 2,117 | | | 8,542 | | | 10,479 | |
Deposit related fees: | | | | | | | | | | | | |
| Automated teller machine fees | | 2,387 | | | 2,187 | | | 9,503 | | | 8,925 | |
| Other fees | | 5,013 | | | 4,420 | | | 18,886 | | | 16,892 | |
|
| | Total loan and deposit related fees | $ | 17,836 | | $ | 13,044 | | $ | 60,539 | | $ | 53,076 | |
|
Loan servicing income (loss), net | | | | | | | | | | | | |
Net cash servicing fees | $ | 3,595 | | $ | 5,681 | | $ | 20,945 | | $ | 21,215 | |
Payoff and curtailment interest cost(a) | | (968 | ) | | (1,597 | ) | | (5,631 | ) | | (11,611 | ) |
Amortization of MSRs | | (2,998 | ) | | (5,001 | ) | | (17,789 | ) | | (24,774 | ) |
(Provision for) reduction of impairment of MSRs | | (1,505 | ) | | 7,685 | | | (16,750 | ) | | (11,890 | ) |
|
| Total loan servicing income (loss), net | $ | (1,876 | ) | $ | 6,768 | | $ | (19,225 | ) | $ | (27,060 | ) |
|
Net gains (losses) on sales of loans and mortgage-backed | | | | | | | | | | | | |
| securities | | | | | | | | | | | | |
Mortgage servicing rights | $ | 1,835 | | $ | 9,091 | | $ | 31,991 | | $ | 61,110 | |
All other components excluding SFAS 133 | | 25,954 | | | (4,553 | ) | | 24,817 | | | 1,264 | |
SFAS 133 | | (5,030 | ) | | 1,016 | | | (2,365 | ) | | (938 | ) |
|
| Total net gains on sales of loans and | | | | | | | | | | | | |
| | mortgage-backed securities | $ | 22,759 | | $ | 5,554 | | $ | 54,443 | | $ | 61,436 | |
|
Secondary marketing gain excluding SFAS 133 as a | | | | | | | | | | | | |
| percentage of associated sales | | 0.87 | % | | 0.48 | % | | 0.82 | % | | 0.95 | % |
|
Mortgage servicing rights activity | | | | | | | | | | | | |
Gross balance at beginning of period | $ | 99,127 | | $ | 92,665 | | $ | 95,183 | | $ | 90,584 | |
Additions | | 1,835 | | | 9,091 | | | 31,991 | | | 61,110 | |
Amortization | | (2,998 | ) | | (5,001 | ) | | (17,789 | ) | | (24,774 | ) |
Sales | | (61,663 | ) | | - | | | (61,663 | ) | | - | |
Impairment write-down | | (15,799 | ) | | (1,572 | ) | | (27,220 | ) | | (31,737 | ) |
|
| Gross balance at end of period | | 20,502 | | | 95,183 | | | 20,502 | | | 95,183 | |
|
Allowance balance at beginning of period | | 16,832 | | | 22,265 | | | 13,008 | | | 32,855 | |
Provision for (reduction of) impairment | | 1,505 | | | (7,685 | ) | | 16,750 | | | 11,890 | |
Impairment write-down | | (15,799 | ) | | (1,572 | ) | | (27,220 | ) | | (31,737 | ) |
|
| Allowance balance at end of period | | 2,538 | | | 13,008 | | | 2,538 | | | 13,008 | |
|
| | Total mortgage servicing rights, net | $ | 17,964 | | $ | 82,175 | | $ | 17,964 | | $ | 82,175 | |
|
As a percentage of associated mortgage loans | | 0.86 | % | | 0.89 | % | | 0.86 | % | | 0.89 | % |
Estimated fair value(b) | $ | 17,968 | | $ | 82,314 | | $ | 17,968 | | $ | 82,314 | |
Weighted average expected life (in months) | | 53 | | | 59 | | | 53 | | | 59 | |
Custodial account earnings rate | | 2.69 | % | | 1.65 | % | | 2.69 | % | | 1.65 | % |
Weighted average discount rate | | 9.03 | | | 8.95 | | | 9.03 | | | 8.95 | |
|
Earnings Release and Table Listing
| December 31, | September 30, | December 31, |
(Dollars in Thousands) | 2004 | 2004 | 2003 |
|
Mortgage loans serviced for others | | | | | | | | | |
Total | $ | 6,672,984 | | $ | 10,568,339 | | $ | 9,313,948 | |
With capitalized mortgage servicing rights: (b) | | | | | | | | | |
| Amount | | 2,100,452 | | | 10,075,028 | | | 9,268,308 | |
| Weighted average interest rate | | 5.59 | % | | 5.52 | % | | 5.79 | % |
Total loans sub-serviced without mortgage servicing rights | | 4,541,746 | | | 459,307 | | | - | |
|
Custodial account balances | $ | 143,765 | | $ | 229,704 | | $ | 232,562 | |
|
(a) Represents the difference between the contractual obligation to pay interest to the investor for an entire month, less the actual interest received when a loan prepays prior to the end of the month. This does not include the benefit of the use of repaid loan funds to increase 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 sub-serviced without capitalized mortgage servicing rights.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| December 31, | September 30, | December 31, |
(Dollars in Thousands) | 2004 | 2004 | 2003 |
|
Loans held for investment | | | | | | | | | |
Loans secured by real estate: | | | | | | | | | |
| Residential one-to-four units | $ | 11,509,067 | | $ | 11,645,362 | | $ | 8,737,471 | |
| Residential one-to-four units — subprime | | 1,254,452 | | | 1,167,565 | | | 988,039 | |
|
| | Total residential one-to-four units | | 12,763,519 | | | 12,812,927 | | | 9,725,510 | |
| Residential five or more units | | 96,587 | | | 97,363 | | | 92,928 | |
| Commercial real estate | | 32,678 | | | 42,479 | | | 49,286 | |
| Construction | | 67,519 | | | 72,599 | | | 105,706 | |
| Land | | 25,569 | | | 25,764 | | | 16,855 | |
Non-mortgage: | | | | | | | | | |
| Commercial | | 4,997 | | | 5,990 | | | 4,975 | |
| Automobile | | 858 | | | 1,297 | | | 3,823 | |
| Other consumer | | 283,798 | | | 235,113 | | | 95,319 | |
|
| | Total loans held for investment | | 13,275,525 | | | 13,293,532 | | | 10,094,402 | |
Increase (decrease) for: | | | | | | | | | |
| Undisbursed loan funds and net deferred costs and premiums | | 183,188 | | | 152,165 | | | 52,447 | |
| Allowance for losses | | (34,714 | ) | | (34,551 | ) | | (30,330 | ) |
|
| | Total loans held for investment, net | $ | 13,423,999 | | $ | 13,411,146 | | $ | 10,116,519 | |
|
| | | | | | | | | |
Loans held for sale, net | | | | | | | | | |
Residential one-to-four units | $ | 1,122,534 | | $ | 842,853 | | $ | 276,295 | |
Other consumer | | - | | | 63 | | | 3,090 | |
Capitalized basis adjustment(a) | | (4,059 | ) | | 2,997 | | | 272 | |
|
| Total loans held for sale | $ | 1,118,475 | | $ | 845,913 | | $ | 279,657 | |
|
| | | | | | | | | |
Delinquent loans | | | | | | | | | |
30-59 days | $ | 17,255 | | $ | 14,539 | | $ | 21,660 | |
60-89 days | | 6,278 | | | 10,341 | | | 10,071 | |
90+ days(b) | | 23,415 | | | 22,687 | | | 29,887 | |
|
| Total delinquent loans | $ | 46,948 | | $ | 47,567 | | $ | 61,618 | |
|
Delinquencies as a percentage of total loans | | 0.33 | % | | 0.34 | % | | 0.59 | % |
|
| | | | | | | | | |
Non-performing assets | | | | | | | | | |
Non-accrual loans: | | | | | | | | | |
| Residential one-to-four units | $ | 20,470 | | $ | 23,091 | | $ | 26,325 | |
| Residential one-to-four units — subprime | | 10,696 | | | 12,870 | | | 15,980 | |
| Other | | 468 | | | 464 | | | 523 | |
|
| | Total non-accrual loans | | 31,634 | | | 36,425 | | | 42,828 | |
Real estate acquired in settlement of loans | | 2,555 | | | 2,819 | | | 5,803 | |
Repossessed automobiles | | - | | | - | | | - | |
|
| Total non-performing assets | $ | 34,189 | | $ | 39,244 | | $ | 48,631 | |
|
Non-performing assets as a percentage of total assets | | 0.22 | % | | 0.25 | % | | 0.42 | % |
|
(a) Reflected 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.
.Note: Certain prior period amounts have been reclassified to conform to the current presentation.