Downey Savings & Loan Posts Net of $11 Million
In the face of a sagging real estate economy and fewer mortgages, Downey Savings & Loan posted net income of $11 million, or 68 cents a share, for the second quarter.
The profit, gleaned mainly from the thrift’s basic home loan operation, was a 7% increase over last year’s second-quarter earnings of $10.3 million, or 64 cents a share.
For the first six months, Downey earned $23.5 million, a slight increase over $23.45 million for the same period last year. The per-share earnings in both periods was $1.45.
Like many S&Ls;, Downey benefited from a bigger profit margin--the difference between the average interest rate it earns on loans and investments and the average rate it pays on deposits and borrowings. Its margin increased to 3.12 percentage points at the end of June, contrasted with 2.39 points at the end of last year. For years, thrifts existed on margins of less than 2 points.
Unlike many S&Ls;, Downey has kept its bad loans well below the industry average, which in California was 1.9% of assets at the start of the year. The Newport Beach thrift’s problem loans amounted to only 0.52% of its $4.1 billion in assets, and it added less than $300,000 to its reserves for future loan and real estate losses.
Downey earned higher profits despite the fact that its overall revenue dropped. Quarterly revenue was $90.8 million, an 8% drop from $99 million in last year’s second quarter. Revenue for the first six months dropped 6.5% to $187.3 million from $200.3 million last year.
Downey still has its real estate ventures to cash in on. The thrift lost $34,000 in the second quarter on its direct investments, but it is in the process of selling a number of projects, primarily its neighborhood shopping centers.
Under the 1989 federal law that restructures the S&L; industry, thrifts must recoup any federally insured deposits they used to make direct investments by mid-1994. For most S&Ls; with such investments, that means selling all or most of their real estate and securities holdings.
Downey had been the largest shopping center developer in California and Arizona, and its success and conservative approach had boosted its profits and earned it a reputation for making nontraditional investments seem conventional.
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