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:
Brian E. Côté
Chief Financial Officer
(949) 509-4420 |
|
DOWNEY ANNOUNCES THIRD QUARTER 2007 RESULTS
Newport Beach, California - October 17, 2007 - Downey Financial Corp. (NYSE: DSL) reported a net loss for the third quarter of 2007 of $23.4 million or $0.84 per share on a diluted basis, compared to net income of $55.6 million or $1.99 per share in the third quarter of 2006.
The $135.8 million unfavorable change in pre-tax income /(loss) between third quarters was due primarily to:
- A $71.9 million increase in provision for credit losses;
- A $32.3 million or 24.8% decline in net interest income due to a lower level of interest-earning assets and, to a lesser extent, a lower effective interest rate spread;
- A $13.2 million unfavorable change in income from real estate and joint ventures held for investment, as the current quarter included a writedown of $9.0 million to reflect declines in the value of single family home lots in which the company is a joint venture partner and net gains from sales were below a year ago; and
- A $12.3 million or 83.1% decline in net gains on sales of loans and mortgage-backed securities due to both a lower level of loans sold and gain per dollar of loan sold.
For the first nine months of 2007, net income totaled $52.2 million or $1.87 per share on a diluted basis, down 64.6% from the $147.5 million or $5.29 per share for the first nine months of 2006.
Daniel D. Rosenthal, President and Chief Executive Officer, "We are clearly disappointed with our third quarter results. The continued weakening and uncertainty relative to the housing market, coupled with the third-quarter disruption in the secondary mortgage markets, unfavorably impacted our borrowers and the value of their loan collateral. As a result, single family loan delinquencies, as well as losses from foreclosures, rose significantly during the third quarter and led to this quarter’s large increase to the allowance for loan losses. However, despite this quarter’s unfavorable results, Downey remains well positioned to continue funding quality loans because of our strong capital position and stable source of funds from our retail branch franchise."
Net Interest Income
Net interest income totaled $98.0 million in the third quarter of 2007, down $32.3 million or 24.8% from a year ago, reflecting a $2.747 billion or 16.4% decline in average interest-earning assets and a decline in the effective interest rate spread. The average effective interest rate spread was 2.79% in the current quarter, down 0.31% from a year ago and down 0.28% from the second quarter of 2007. Compared to a year ago, the current quarter effective interest rate spread was unfavorably impacted by a lower proportion of loan prepayment fees to the amount of deferred loan origination costs written-off as a result of those payoffs, which declined to 52.4% in the current quarter from 100.8% a year ago. This decline was the result of a higher proportion of loans being repaid that were no longer subject to
prepayment fees primarily due to the increasing age of the loan portfolio. In addition, the current quarter effective interest rate spread was unfavorably impacted by a higher proportion of earning assets being comprised of investment securities and hybrid adjustable rate mortgage loans, both of which have lower yields than those of option ARM loans that comprised a larger proportion of interest-earning assets a year ago. However, these unfavorable items were partially offset by a higher proportion of interest-earning assets being funded with interest free funds (the excess of interest-earning assets over interest-bearing deposits and borrowings).
For the first nine months of 2007, net interest income totaled $334.5 million, down $54.0 million or 13.9% from the year-ago period.
Provision for Credit Losses
During the current quarter, the provision for credit losses totaled $81.6 million, up $71.9 million from a year ago. At September 30, 2007, the allowance for credit losses was $143.6 million, comprised of $142.2 million for loan losses and $1.4 million for unfunded loan commitments which is reported within accounts payable and accrued liabilities. The increase to the allowance this quarter reflected the unfavorable impact to our borrowers and the value of their loan collateral from the continued weakening and uncertainty relative to the housing market, coupled with the current quarter disruption in the secondary mortgage markets. This has been particularly true in certain geographic areas such as the greater Sacramento and Stockton areas of Northern California and San Diego County. Net charge-offs of loans totaled $8.3 million in the current quarter, compared to $0.2 million a year ago. Included was a $4.0 million net charge-off associated with a $11.3 million land loan that was foreclosed upon during the quarter. The balance of the net charge-offs in the current quarter are primarily related to residential one-to-four unit loans, with the annualized net charge-off ratio associated with these loans increasing to 0.15% from less 0.01% a year ago.
For the first nine months of 2007, the provision for credit losses totaled $91.7 million and net charge-offs were $10.0 million. This compares with a $26.4 million provision for credit losses and net charge-offs of $0.3 million a year ago.
Other Income
Other income totaled $3.0 million in the current quarter, down $27.6 million or 90.1% from a year ago. Contributing to the decline between third quarters was:
- A $13.2 million unfavorable change in income from real estate and joint ventures held for investment, as the current quarter included a writedown of $9.0 million to reflect declines in the value of single family home lots in which the company is a joint venture partner and net gains from sales were below a year ago. Gains from sales in the current quarter totaled $0.7 million, compared to $5.7 million a year ago; and
- A $12.3 million decline in net gains on sales of loans and mortgage-backed securities, reflecting both a decline in loans sold and a lower gain per dollar of loan sold. Net gains in the current quarter totaled $2.5 million, including a $0.6 million loss due to the SFAS 133 impact of valuing derivatives associated with the sale of loans. Excluding the impact of SFAS 133, a gain was realized equal to 0.91% on secondary market sales of $337 million, compared with the year-ago gain of 1.68% on secondary market sales of $903 million.
For the first nine months of 2007, other income totaled $38.2 million, down $36.7 million or 48.9% from a year ago.
Operating Expense
Operating expense totaled $62.7 million in the current quarter, up $4.0 million or 6.8% from a year ago. The increase primarily reflected an increase of $3.5 million in net operations of real estate acquired in the settlement of loans due to a higher number of foreclosed properties, including 113 single family lots acquired through foreclosure of a land loan during the quarter. In addition, general and administrative expense increased $0.5 million or 0.8%. All major categories of general and administrative expense were above year-ago levels except for salaries and related costs, which were $2.2 million or 5.8% below the prior year. The decline in salaries and related costs primarily reflected the reversal in the current quarter of certain management incentive plan accruals.
For the first nine months of 2007, operating expense totaled $190.7 million, up $9.5 million or 5.3% from a year ago.
Income Taxes
The effective tax rate in the current quarter was 45.96%, compared to 39.92% in the year-ago quarter. The increase in the effective tax rate between third quarters primarily reflected a reduction in tax expense in the year-ago quarter related to a settlement of prior-year tax returns. For the first nine months of 2007, the effective tax rate was 42.22%, compared to 42.34% a year ago.
Assets, Loan Originations and Deposits
At September 30, 2007, assets totaled $14.418 billion, down $2.564 billion or 15.1% from a year ago and down $1.790 billion or 11.0% from year-end 2006. During the current quarter, assets declined $485 million due primarily to declines of $602 million in loans held for investment and $98 million in loans held for sale. Those declines were partially offset by an increase of $225 million in securities available for sale. Included within loans held for investment at quarter end were $8.255 billion of single family adjustable rate mortgages subject to negative amortization, down $659 million from June 30, 2007. These loans comprised 74% of the single family residential loan portfolio held for investment at quarter end, compared to 87% a year ago. The amount of negative amortization included in loan balances increased $11 million during the current quarter to $388 million or 4.70% of loans subject to negative amortization. During the current quarter, approximately 26% of loan interest income represented negative amortization, down from 29% in the second quarter of 2007 and 28% in the year-ago third quarter.
Loan originations (including purchases) totaled $694 million in the current quarter, down $911 million or 56.8% from $1.605 billion a year ago. Loans originated for sale declined $579 million or 70.3% to $245 million, while single family residential loans originated for portfolio declined $332 million or 43.5% to $432 million. In addition to single family residential loans, $17 million of other loans were originated in the current quarter, similar to the amount a year ago. For the first nine months of 2007, loan originations totaled $3.164 billion, down 51.2% from $6.489 billion in the same period a year ago.
Deposits totaled $10.663 billion at quarter end, down $1.283 billion or 10.7% from a year ago and down $1.122 billion or 9.5% from year-end 2006. At quarter end, the number of branches totaled 172 (168 in California and four in Arizona). At quarter end, the average deposit size of our 82 traditional branches was $103 million, while the average deposit size of our 90 in-store branches was $25 million. Since the end of 2006, borrowings have declined by $735 million and at the end of the current quarter represented 14.4% of total assets.
Non-Performing Assets
Non-performing assets increased during the quarter by $97 million or 42.5% to $324 million and represented 2.25% of total assets, compared with 0.68% at year-end 2006 and 0.39% a year ago. Virtually all of the increase in the current quarter was related to single family residential loans.
Regulatory Capital Ratios
At September 30, 2007, Downey Financial Corp.’s primary subsidiary, Downey Savings and Loan Association, F.A., had core and tangible capital ratios of 10.21% and a risk-based capital ratio of 21.34%. 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, the outcome of ongoing audits by taxing authorities 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: Brian E. Côté, Chief Financial Officer at (949) 509-4420.
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) | 2007 | 2006 | 2006 |
|
Assets | | | | | | | | | |
Cash | $ | 86,072 | | $ | 124,865 | | $ | 179,780 | |
Federal funds | | 1,551 | | | 1 | | | 1 | |
|
| Cash and cash equivalents | | 87,623 | | | 124,866 | | | 179,781 | |
U.S. Treasury, government sponsored entities and other investment | | | | | | | | | |
| securities available for sale, at fair value | | 2,142,278 | | | 1,433,176 | | | 1,162,614 | |
Loans held for sale, at lower of cost or fair value | | 90,228 | | | 363,215 | | | 323,428 | |
Mortgage-backed securities available for sale, at fair value | | 112 | | | 251 | | | 257 | |
Loans held for investment | | 11,744,063 | | | 13,868,227 | | | 14,872,642 | |
Allowance for loan losses | | (142,218 | ) | | (60,943 | ) | | (60,784 | ) |
|
| Loans held for investment, net | | 11,601,845 | | | 13,807,284 | | | 14,811,858 | |
Investments in real estate and joint ventures | | 58,715 | | | 59,843 | | | 55,663 | |
Real estate acquired in settlement of loans | | 59,773 | | | 8,524 | | | 5,761 | |
Premises and equipment, net | | 117,535 | | | 114,052 | | | 115,442 | |
Federal Home Loan Bank stock, at cost | | 70,058 | | | 152,953 | | | 187,186 | |
Mortgage servicing rights, net | | 21,849 | | | 21,196 | | | 20,310 | |
Other assets | | 167,701 | | | 122,022 | | | 119,257 | |
|
| | $ | 14,417,717 | | $ | 16,207,382 | | $ | 16,981,557 | |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
Deposits | $ | 10,662,618 | | $ | 11,784,869 | | $ | 11,945,758 | |
Securities sold under agreements to repurchase | | 566,350 | | | 469,971 | | | 463,678 | |
Federal Home Loan Bank advances | | 1,308,867 | | | 2,140,785 | | | 2,680,546 | |
Senior notes | | 198,398 | | | 198,260 | | | 198,216 | |
Accounts payable and accrued liabilities | | 237,258 | | | 220,262 | | | 338,814 | |
Deferred income taxes | | - | | | - | | | 9,952 | |
|
| Total liabilities | | 12,973,491 | | | 14,814,147 | | | 15,636,964 | |
|
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, 2007, December 31, 2006 and | | | | | | | | | |
| September 30, 2006; outstanding 27,853,783 shares at September 30, 2007, | | | | | | |
| December 31, 2006 and September 30, 2006 | | 282 | | | 282 | | | 282 | |
Additional paid-in capital | | 93,792 | | | 93,792 | | | 93,792 | |
Accumulated other comprehensive income (loss) | | 388 | | | (5,204 | ) | | (4,516 | ) |
Retained earnings | | 1,366,556 | | | 1,321,157 | | | 1,271,827 | |
Treasury stock, at cost, 381,239 shares at September 30, 2007, | | | | | | | | | |
| December 31, 2006 and September 30, 2006 | | (16,792 | ) | | (16,792 | ) | | (16,792 | ) |
|
| Total stockholders’ equity | | 1,444,226 | | | 1,393,235 | | | 1,344,593 | |
|
| | $ | 14,417,717 | | $ | 16,207,382 | | $ | 16,981,557 | |
|
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) | 2007 | | 2006 | | 2007 | 2006 | |
|
Interest income | | | | | | | | | | | | |
Loans | $ | 208,314 | | $ | 277,974 | | $ | 690,869 | | $ | 808,552 | |
U.S. Treasury and government sponsored entities securities | | 26,350 | | | 11,404 | | | 65,644 | | | 27,670 | |
Mortgage-backed securities | | 3 | | | 3 | | | 9 | | | 9 | |
Other investment securities | | 1,207 | | | 2,419 | | | 5,396 | | | 6,941 | |
|
| Total interest income | | 235,874 | | | 291,800 | | | 761,918 | | | 843,172 | |
|
Interest expense | | | | | | | | | | | | |
Deposits | | 108,514 | | | 110,033 | | | 333,977 | | | 301,666 | |
Federal Home Loan Bank advances and other borrowings | | 26,088 | | | 48,229 | | | 83,494 | | | 143,109 | |
Senior notes | | 3,302 | | | 3,299 | | | 9,904 | | | 9,895 | |
|
| Total interest expense | | 137,904 | | | 161,561 | | | 427,375 | | | 454,670 | |
|
Net interest income | | 97,970 | | | 130,239 | | | 334,543 | | | 388,502 | |
Provision for credit losses | | 81,562 | | | 9,640 | | | 91,684 | | | 26,359 | |
|
| Net interest income after provision for credit losses | | 16,408 | | | 120,599 | | | 242,859 | | | 362,143 | |
|
Other income, net | | | | | | | | | | | | |
Loan and deposit related fees | | 8,913 | | | 9,279 | | | 27,087 | | | 27,008 | |
Real estate and joint ventures held for investment, net | | (7,892 | ) | | 5,331 | | | (7,527 | ) | | 10,173 | |
Secondary marketing activities: | | | | | | | | | | | | |
| Loan servicing income (loss), net | | (294 | ) | | (377 | ) | | (1,519 | ) | | 264 | |
| Net gains on sales of loans and mortgage-backed securities | | 2,506 | | | 14,847 | | | 20,224 | | | 35,120 | |
Litigation award | | - | | | 1,625 | | | - | | | 1,625 | |
Other | | (197 | ) | | (36 | ) | | (16 | ) | | 719 | |
|
| Total other income, net | | 3,036 | | | 30,669 | | | 38,249 | | | 74,909 | |
|
Operating expense | | | | | | | | | | | | |
Salaries and related costs | | 36,699 | | | 38,943 | | | 119,931 | | | 120,596 | |
Premises and equipment costs | | 9,736 | | | 8,804 | | | 27,667 | | | 25,752 | |
Advertising expense | | 1,400 | | | 1,211 | | | 4,469 | | | 4,332 | |
Deposit insurance premiums and regulatory assessments | | 2,413 | | | 2,224 | | | 7,659 | | | 4,246 | |
Professional fees | | 489 | | | 254 | | | 1,779 | | | 1,496 | |
Other general and administrative expense | | 8,275 | | | 7,087 | | | 24,271 | | | 24,557 | |
|
| Total general and administrative expense | | 59,012 | | | 58,523 | | | 185,776 | | | 180,979 | |
Net operation of real estate acquired in settlement of loans | | 3,664 | | | 166 | | | 4,903 | | | 185 | |
|
| Total operating expense | | 62,676 | | | 58,689 | | | 190,679 | | | 181,164 | |
|
Income (loss) before income taxes (tax benefits) | | (43,232 | ) | | 92,579 | | | 90,429 | | | 255,888 | |
Income taxes (tax benefits) | | (19,871 | ) | | 36,959 | | | 38,183 | | | 108,347 | |
|
| Net income (loss) | $ | (23,361 | ) | $ | 55,620 | | $ | 52,246 | | $ | 147,541 | |
|
Per share information | | | | | | | | | | | | |
Basic | $ | (0.84 | ) | $ | 2.00 | | $ | 1.87 | | $ | 5.30 | |
Diluted | $ | (0.84 | ) | $ | 1.99 | | $ | 1.87 | | $ | 5.29 | |
Cash dividends declared and paid | $ | 0.12 | | $ | 0.10 | | $ | 0.36 | | $ | 0.30 | |
Weighted average shares outstanding | | | | | | | | | | | | |
Basic | 27,853,783 | | 27,853,783 | | 27,853,783 | | 27,853,783 | |
Diluted | 27,880,317 | | 27,883,198 | | 27,882,804 | | 27,883,567 | |
|
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) | 2007 | 2006 | 2007 | 2006 |
|
Net income (loss) by business segment | | | | | | | | | | | | |
Banking | $ | (18,851 | ) | $ | 51,432 | | $ | 56,186 | | $ | 140,442 | |
Real estate investment | | (4,510 | ) | | 4,188 | | | (3,940 | ) | | 7,099 | |
|
| Total net income (loss) | $ | (23,361 | ) | $ | 55,620 | | $ | 52,246 | | $ | 147,541 | |
|
| | | | | | | | | | | | |
Selected financial ratios | | | | | | | | | | | | |
Effective interest rate spread | | 2.79 | % | | 3.10 | % | | 3.05 | % | | 3.05 | % |
Efficiency ratio(a) | | 54.19 | | | 38.01 | | | 48.85 | | | 40.07 | |
Return on average assets | | (0.64 | ) | | 1.29 | | | 0.46 | | | 1.13 | |
Return on average equity | | (6.36 | ) | | 16.94 | | | 4.82 | | | 15.52 | |
|
| | | | | | | | | | | | |
Asset and liability activity | | | | | | | | | | | | |
Loans for investment portfolio: | | | | | | | | | | | | |
| Originations:(b) | | | | | | | | | | | | |
| | Residential one-to-four units | $ | 432,262 | | $ | 764,746 | | $ | 1,734,112 | | $ | 3,613,829 | |
| | All other | | 16,743 | | | 15,744 | | | 49,119 | | | 178,473 | |
| Repayments | | (979,625 | ) | | (1,563,517 | ) | | (4,029,811 | ) | | (4,553,476 | ) |
| | | | | | | | | | | | |
Loans originated for sale portfolio(b) | | 244,831 | | | 824,072 | | | 1,380,371 | | | 2,696,550 | |
| | | | | | | | | | | | |
Loans and mortgage-backed securities sold | | (337,320 | ) | | (903,156 | ) | | (1,621,690 | ) | | (2,807,436 | ) |
| | | | | | | | | | | | |
Decrease in loans and mortgage-backed securities | | (699,881 | ) | | (803,030 | ) | | (2,478,565 | ) | | (686,380 | ) |
| | | | | | | | | | | | |
Decrease in assets | | (485,253 | ) | | (483,223 | ) | | (1,789,665 | ) | | (114,106 | ) |
| | | | | | | | | | | | |
Increase (decrease) in deposits | | (584,188 | ) | | 58,019 | | | (1,122,251 | ) | | 68,910 | |
| | | | | | | | | | | | |
Increase (decrease) in borrowings | | 183,347 | | | (610,224 | ) | | (735,401 | ) | | (413,162 | ) |
|
Earnings Release and Table Listing
| | | | September 30, | December 31, | September 30, |
| | | | 2007 | 2006 | 2006 |
|
Capital ratios (Bank only) | | | | | | | | | | | | |
Tangible and core | | | | | 10.21 | % | | 8.76 | % | | 8.42 | % |
Risk-based | | | | | 21.34 | | | 17.78 | | | 16.96 | |
| | | | | | | | | | | | |
Book value per share | | | | $ | 51.85 | | $ | 50.02 | | $ | 48.27 | |
| | | | | | | | | | | | |
Number of branches including in-store locations | | | | | 172 | | | 172 | | | 171 | |
|
(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 and litigation award.
(b) Included loans purchased.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| Three Months Ended September 30, |
|
|
| 2007 | 2006 |
|
|
| Average | | Average | Average | | Average |
(Dollars in Thousands) | Balance | Interest | Yield/Rate | Balance | Interest | Yield/Rate |
|
Average balance sheet data | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | |
| Loans: | | | | | | | | | | | | | | |
| | Loan prepayment fees | | | $ | 8,542 | | 0.29 | % | | | $ | 26,451 | | 0.67 | % |
| | Write-off of deferred costs and | | | | | | | | | | | | | | |
| | | premiums from loan payoffs | | | | (16,315 | ) | (0.55 | ) | | | | (26,248 | ) | (0.67 | ) |
| | All other | | | | 216,087 | | 7.22 | | | | | 277,771 | | 7.11 | |
|
| | | Total loans | $ | 11,973,516 | | 208,314 | | 6.96 | | $ | 15,629,328 | | 277,974 | | 7.11 | |
| Mortgage-backed securities | | 113 | | 3 | | 5.77 | | | 260 | | 3 | | 4.62 | |
| Investment securities(a) | | 2,068,187 | | 27,557 | | 5.29 | | | 1,159,674 | | 13,823 | | 4.73 | |
|
| | Total interest-earnings assets | | 14,041,816 | $ | 235,874 | | 6.72 | % | | 16,789,262 | $ | 291,800 | | 6.95 | % |
Non-interest-earning assets | | 485,648 | | | | | | | 451,281 | | | | | |
|
| Total assets | $ | 14,527,464 | | | | | | $ | 17,240,543 | | | | | |
|
Transaction accounts: | | | | | | | | | | | | | | |
| Non-interest-bearing checking(b) | $ | 730,179 | $ | - | | - | % | $ | 764,207 | $ | - | | - | % |
| Interest-bearing checking(b) | | 470,516 | | 340 | | 0.29 | | | 487,811 | | 426 | | 0.35 | |
| Money market | | 139,808 | | 367 | | 1.04 | | | 153,777 | | 404 | | 1.04 | |
| Regular passbook | | 1,117,084 | | 2,660 | | 0.94 | | | 1,413,319 | | 3,533 | | 0.99 | |
|
| | Total transaction accounts | | 2,457,587 | | 3,367 | | 0.54 | | | 2,819,114 | | 4,363 | | 0.61 | |
Certificates of deposit | | 8,455,461 | | 105,147 | | 4.93 | | | 9,168,872 | | 105,670 | | 4.57 | |
|
| Total deposits | | 10,913,048 | | 108,514 | | 3.94 | | | 11,987,986 | | 110,033 | | 3.64 | |
FHLB advances and other borrowings(c) | | 1,766,933 | | 26,088 | | 5.86 | | | 3,386,019 | | 48,229 | | 5.65 | |
Senior notes | | 198,381 | | 3,302 | | 6.66 | | | 198,199 | | 3,299 | | 6.66 | |
|
| Total deposits and borrowings | | 12,878,362 | | 137,904 | | 4.25 | | | 15,572,204 | | 161,561 | | 4.12 | |
Other liabilities | | 179,944 | | | | | | | 354,897 | | | | | |
Stockholders’ equity | | 1,469,158 | | | | | | | 1,313,442 | | | | | |
|
| Total liabilities and stockholders’ equity | $ | 14,527,464 | | | | | | $ | 17,240,543 | | | | | |
|
Net interest income/interest rate spread | | | $ | 97,970 | | 2.47 | % | | | $ | 130,239 | | 2.83 | % |
Excess of interest-earning assets over | | | | | | | | | | | | | | |
| deposits and borrowings | $ | 1,163,454 | | | | | | $ | 1,217,058 | | | | | |
Effective interest rate spread | | | | | | 2.79 | | | | | | | 3.10 | |
|
(a) Yields for securities available for sale are calculated using historical cost balances and are not adjusted for changes in fair value that are reflected as a separate component of stockholders’ equity.
(b) Included amounts swept into money market deposit accounts.
(c) The impact of interest rate swap contracts was included, with notional amounts totaling $430 million of receive-fixed, pay-3-month London Inter-Bank Offered Rate ("LIBOR") variable interest, which contracts serve as a permitted hedge against a portion of our FHLB advances.
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| Nine Months Ended September 30, |
|
|
| 2007 | 2006 |
|
|
| Average | | Average | Average | | Average |
(Dollars in Thousands) | Balance | Interest | Yield/Rate | Balance | Interest | Yield/Rate |
|
Average balance sheet data | | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | | |
| Loans: | | | | | | | | | | | | | | |
| | Loan prepayment fees | | | $ | 47,937 | | 0.50 | % | | | $ | 73,810 | | 0.61 | % |
| | Write-off of deferred costs and | | | | | | | | | | | | | | |
| | | premiums from loan payoffs | | | | (66,454 | ) | (0.69 | ) | | | | (74,311 | ) | (0.62 | ) |
| | All other | | | | 709,386 | | 7.37 | | | | | 809,053 | | 6.74 | |
|
| | | Total loans | $ | 12,829,398 | | 690,869 | | 7.18 | | $ | 16,016,713 | | 808,552 | | 6.73 | |
| Mortgage-backed securities | | 127 | | 9 | | 5.85 | | | 268 | | 9 | | 4.48 | |
| Investment securities(a) | | 1,781,837 | | 71,040 | | 5.33 | | | 994,502 | | 34,611 | | 4.65 | |
|
| | Total interest-earnings assets | | 14,611,362 | $ | 761,918 | | 6.95 | % | | 17,011,483 | $ | 843,172 | | 6.61 | % |
Non-interest-earning assets | | 478,398 | | | | | | | 432,356 | | | | | |
|
| Total assets | $ | 15,089,760 | | | | | | $ | 17,443,839 | | | | | |
|
Transaction accounts: | | | | | | | | | | | | | | |
| Non-interest-bearing checking(b) | $ | 762,050 | $ | - | | - | % | $ | 736,206 | $ | - | | - | % |
| Interest-bearing checking(b) | | 481,867 | | 1,117 | | 0.31 | | | 503,844 | | 1,300 | | 0.34 | |
| Money market | | 145,141 | | 1,128 | | 1.04 | | | 159,842 | | 1,248 | | 1.04 | |
| Regular passbook | | 1,183,810 | | 8,423 | | 0.95 | | | 1,568,114 | | 11,857 | | 1.01 | |
|
| | Total transaction accounts | | 2,572,868 | | 10,668 | | 0.55 | | | 2,968,006 | | 14,405 | | 0.65 | |
Certificates of deposit | | 8,742,787 | | 323,309 | | 4.94 | | | 9,035,528 | | 287,261 | | 4.25 | |
|
| Total deposits | | 11,315,655 | | 333,977 | | 3.95 | | | 12,003,534 | | 301,666 | | 3.36 | |
FHLB advances and other borrowings(c) | | 1,909,513 | | 83,494 | | 5.85 | | | 3,654,092 | | 143,109 | | 5.24 | |
Senior notes | | 198,334 | | 9,904 | | 6.66 | | | 198,156 | | 9,895 | | 6.66 | |
|
| Total deposits and borrowings | | 13,423,502 | | 427,375 | | 4.26 | | | 15,855,782 | | 454,670 | | 3.83 | |
Other liabilities | | 219,667 | | | | | | | 320,811 | | | | | |
Stockholders’ equity | | 1,446,591 | | | | | | | 1,267,246 | | | | | |
|
| Total liabilities and stockholders’ equity | $ | 15,089,760 | | | | | | $ | 17,443,839 | | | | | |
|
Net interest income/interest rate spread | | | $ | 334,543 | | 2.69 | % | | | $ | 388,502 | | 2.78 | % |
Excess of interest-earning assets over | | | | | | | | | | | | | | |
| deposits and borrowings | $ | 1,187,860 | | | | | | $ | 1,155,701 | | | | | |
Effective interest rate spread | | | | | | 3.05 | | | | | | | 3.05 | |
|
(a) Yields for securities available for sale are calculated using historical cost balances and are not adjusted for changes in fair value that are reflected as a separate component of stockholders’ equity.
(b) Included amounts swept into money market deposit accounts.
(c) 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.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| Three Months Ended | Nine Months Ended |
| September 30, | September 30, |
|
|
(Dollars in Thousands) | 2007 | 2006 | 2007 | 2006 |
|
Loan and deposit related fees | | | | | | | | | | | | |
Loan related fees | $ | 572 | | $ | 901 | | $ | 2,233 | | $ | 2,976 | |
Deposit related fees: | | | | | | | | | | | | |
| Automated teller machine fees | | 2,287 | | | 2,419 | | | 7,032 | | | 6,978 | |
| Other fees | | 6,054 | | | 5,959 | | | 17,822 | | | 17,054 | |
|
| | Total loan and deposit related fees | $ | 8,913 | | $ | 9,279 | | $ | 27,087 | | $ | 27,008 | |
|
Loan servicing income (loss), net | | | | | | | | | | | | |
Net cash servicing fees | $ | 1,657 | | $ | 1,583 | | $ | 4,862 | | $ | 4,723 | |
Payoff and curtailment interest cost(a) | | (787 | ) | | (813 | ) | | (3,241 | ) | | (1,264 | ) |
Amortization of mortgage servicing rights | | (950 | ) | | (1,056 | ) | | (2,941 | ) | | (3,283 | ) |
(Provision for) reduction of impairment of mortgage servicing rights | | (214 | ) | | (91 | ) | | (199 | ) | | 88 | |
|
| Total loan servicing income (loss), net | $ | (294 | ) | $ | (377 | ) | $ | (1,519 | ) | $ | 264 | |
|
Net gains (losses) on sales of loans and mortgage-backed securities | | | | | | | | | | | | |
Mortgage servicing rights | $ | 1,394 | | $ | 837 | | $ | 4,661 | | $ | 3,144 | |
All other components excluding SFAS 133 | | 1,665 | | | 14,314 | | | 14,999 | | | 32,775 | |
SFAS 133 | | (553 | ) | | (304 | ) | | 564 | | | (799 | ) |
|
| Total net gains on sales of loans and mortgage-backed securities | $ | 2,506 | | $ | 14,847 | | $ | 20,224 | | $ | 35,120 | |
|
Secondary marketing gain excluding SFAS 133 as a | | | | | | | | | | | | |
| percentage of associated sales | | 0.91 | % | | 1.68 | % | | 1.21 | % | | 1.28 | % |
|
Mortgage servicing rights activity | | | | | | | | | | | | |
Gross balance at beginning of period | $ | 21,707 | | $ | 20,665 | | $ | 21,435 | | $ | 21,157 | |
Additions(b) | | 1,394 | | | 896 | | | 4,661 | | | 3,203 | |
Amortization | | (950 | ) | | (1,056 | ) | | (2,941 | ) | | (3,283 | ) |
Sales | | - | | | - | | | (868 | ) | | - | |
Impairment write-down | | (37 | ) | | (22 | ) | | (173 | ) | | (594 | ) |
|
| Gross balance at end of period | | 22,114 | | | 20,483 | | | 22,114 | | | 20,483 | |
|
Allowance balance at beginning of period | | 88 | | | 104 | | | 239 | | | 855 | |
Provision for (reduction of) impairment | | 214 | | | 91 | | | 199 | | | (88 | ) |
Impairment write-down | | (37 | ) | | (22 | ) | | (173 | ) | | (594 | ) |
|
| Allowance balance at end of period | | 265 | | | 173 | | | 265 | | | 173 | |
|
| | Total mortgage servicing rights, net | $ | 21,849 | | $ | 20,310 | | $ | 21,849 | | $ | 20,310 | |
|
As a percentage of associated mortgage loans | | 0.90 | % | | 0.87 | % | | 0.90 | % | | 0.87 | % |
Estimated fair value (c) | $ | 23,935 | | $ | 22,383 | | $ | 23,935 | | $ | 22,383 | |
Weighted average expected life (in months) | | 69 | | | 51 | | | 69 | | | 51 | |
Custodial account earnings rate | | 4.57 | % | | 5.28 | % | | 4.57 | % | | 5.28 | % |
Weighted average discount rate | | 11.63 | | | 9.41 | | | 11.63 | | | 9.41 | |
|
Earnings Release and Table Listing
| | | | September 30, | December 31, | September 30, |
(Dollars in Thousands) | | | | 2007 | 2006 | 2006 |
|
Mortgage loans serviced for others | | | | | | | | | | | | |
Total | | | | $ | 5,622,331 | | $ | 5,908,233 | | $ | 6,595,462 | |
With capitalized mortgage servicing rights: (c) | | | | | | | | | | | | |
| Amount | | | | | 2,419,432 | | | 2,394,754 | | | 2,345,880 | |
| Weighted average interest rate | | | | | 5.83 | % | | 5.75 | % | | 5.70 | % |
Total loans sub-serviced without mortgage servicing rights:(d) | | | | | | | | | | | | |
| Term – less than six months | | | | $ | 76,870 | | $ | 93,074 | | $ | 981,883 | |
| Term – indefinite | | | | | 3,112,895 | | | 3,404,342 | | | 3,249,905 | |
|
Custodial account balances | | | | $ | 84,819 | | $ | 172,462 | | $ | 171,481 | |
|
(a) Represents the difference between the contractual obligation to pay interest to the investor for an entire month and the actual interest received when a loan prepays prior to the end of the month. However, loan servicing activities do not include the benefit of the use of total loan repayments to increase net interest income.
(b) Included minor amounts repurchased.
(c) 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.
(d) Servicing is performed for a fixed fee per loan each month.
Earnings Release and Table Listing
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
SELECTED FINANCIAL DATA – (Continued)
| September 30, | December 31, | September 30, |
(Dollars in Thousands) | 2007 | 2006 | 2006 |
|
Loans held for investment | | | | | | | | | |
Loans secured by real estate: | | | | | | | | | |
| Residential one-to-four units | $ | 11,227,561 | | $ | 13,227,004 | | $ | 14,183,205 | |
| Home equity loans and lines of credit | | 143,948 | | | 187,939 | | | 211,713 | |
| Residential five or more units | | 104,672 | | | 113,488 | | | 116,110 | |
| Commercial real estate | | 26,598 | | | 26,700 | | | 26,910 | |
| Construction | | 58,231 | | | 52,922 | | | 58,157 | |
| Land | | 50,864 | | | 58,910 | | | 59,394 | |
Non-mortgage: | | | | | | | | | |
| Commercial | | 5,000 | | | 2,400 | | | 3,400 | |
| Consumer | | 6,057 | | | 6,778 | | | 6,073 | |
|
| | Total loans held for investment | | 11,622,931 | | | 13,676,141 | | | 14,664,962 | |
Increase (decrease) for: | | | | | | | | | |
| Undisbursed loan funds and net deferred costs and premiums | | 121,132 | | | 192,086 | | | 207,680 | |
| Allowance for losses | | (142,218 | ) | | (60,943 | ) | | (60,784 | ) |
|
| | Total loans held for investment, net | $ | 11,601,845 | | $ | 13,807,284 | | $ | 14,811,858 | |
|
| | | | | | | | | |
Loans held for sale | | | | | | | | | |
Residential one-to-four units | $ | 89,794 | | $ | 358,128 | | $ | 318,414 | |
Net deferred costs and premiums | | 53 | | | 4,789 | | | 4,445 | |
Capitalized basis adjustment(a) | | 381 | | | 298 | | | 569 | |
|
| Total loans held for sale, net | $ | 90,228 | | $ | 363,215 | | $ | 323,428 | |
|
| | | | | | | | | |
Residential one-to-four unit loans subject to negative amortization | | | | | | | | | |
Held for investment: | | | | | | | | | |
| Amount | $ | 8,255,389 | | $ | 11,199,870 | | $ | 12,327,000 | |
| Amount as a percentage of total residential one-to-four unit loans | 74 | % | | 85 | % | | 87 | % |
| Negative amortization included in the loan balance | | 387,984 | | | 320,466 | | | 276,947 | |
| Negative amortization as a percentage of the associated loan balance | | 4.70 | % | | 2.86 | % | | 2.25 | % |
|
| | | | | | | | | |
Non-performing assets | | | | | | | | | |
Non-accrual loans: | | | | | | | | | |
| Residential one-to-four units | $ | 255,839 | | $ | 90,218 | | $ | 60,461 | |
| Construction | | 7,808 | | | - | | | - | |
| Land | | - | | | 11,345 | | | - | |
| Other | | 511 | | | 275 | | | 306 | |
|
| | Total non-accrual loans | | 264,158 | | | 101,838 | | | 60,767 | |
Real estate acquired in settlement of loans | | 59,773 | | | 8,524 | | | 5,761 | |
|
| Total non-performing assets | $ | 323,931 | | $ | 110,362 | | $ | 66,528 | |
|
Non-performing assets as a percentage of total assets | | 2.25 | % | | 0.68 | % | | 0.39 | % |
|
| | | | | | | | | |
Delinquent loans | | | | | | | | | |
30-59 days | $ | 129,563 | | $ | 57,042 | | $ | 42,585 | |
60-89 days | | 75,958 | | | 24,313 | | | 21,055 | |
90+ days(b) | | 180,933 | | | 63,162 | | | 37,520 | |
|
| Total delinquent loans | $ | 386,454 | | $ | 144,517 | | $ | 101,160 | |
|
Delinquencies as a percentage of total loans | | 3.30 | % | | 1.03 | % | | 0.68 | % |
|
(a) Reflected the change in fair value of the interest rate lock derivative from the date of rate lock 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.
