<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
For the quarterly period ended MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission File Number 1-13578
DOWNEY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0633413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3501 JAMBOREE ROAD, NEWPORT BEACH, CA 92660
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (714) 854-0300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
COMMON STOCK - $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
At March 31, 1996, 16,972,905 shares of the Registrant's Common Stock,
$0.01 par value were outstanding.
================================================================================
<PAGE>
DOWNEY FINANCIAL CORP.
MARCH 31, 1996 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
FINANCIAL INFORMATION................................... 1
Consolidated Balance Sheets........................... 1
Consolidated Statements of Income..................... 2
Consolidated Statements of Cash Flows................. 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 6
PART II
OTHER INFORMATION..................................... 23
Item 6 Exhibits and Reports on Form 8-K............... 23
</TABLE>
i
<PAGE>
PART I - FINANCIAL INFORMATION
DOWNEY FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars In Thousands, Except Per Share Data) 1996 1995 1995
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash $ 54,070 $ 58,581 $ 34,958
Federal funds 16,888 7,249 80
- - --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 70,958 65,830 35,038
U.S. Treasury and agency obligations and other investment securities
available for sale, at fair value 132,005 164,880 -
U.S. Treasury and agency obligations and other investment securities
being held to maturity, at amortized cost (estimated market value
of $7,075 at March 31, 1996, $7,170 at December 31, 1995 and
$163,968 at March 31, 1995) 7,098 7,194 165,069
Mortgage loans purchased under resale agreements 40,000 - -
Loans held for sale, at the lower of cost or market 19,533 13,059 828
Mortgage-backed securities available for sale, at fair value 72,393 52,076 42,427
Mortgage-backed securities held to maturity, at amortized cost
(estimated market value of $37,755 at March 31, 1995) - - 37,991
Loans receivable held for investment 4,066,080 4,104,339 4,213,252
Investments in real estate and joint ventures 42,903 42,320 53,031
Real estate acquired in settlement of loans 19,454 18,854 25,853
Premises and equipment 95,075 92,977 92,842
Federal Home Loan Bank stock, at cost 39,653 39,146 37,789
Other assets 47,432 55,592 41,784
- - --------------------------------------------------------------------------------------------------------------------------
$4,652,584 $4,656,267 $4,745,904
- - --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits $3,574,549 $3,493,207 $3,493,649
Checking deposits 316,109 297,014 281,434
- - --------------------------------------------------------------------------------------------------------------------------
Total deposits 3,890,658 3,790,221 3,775,083
Mortgage-backed securities sold under agreements to repurchase - 16,099 52,547
Federal Home Loan Bank advances 181,137 220,715 292,800
Commercial paper 148,358 196,602 197,717
Other borrowings 2,721 2,802 11,097
Accounts payable and accrued liabilities 38,250 37,032 39,512
Deferred income taxes 3,990 8,724 9,210
- - --------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,265,114 4,272,195 4,377,966
- - --------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, par value of $0.01 per share; authorized 50,000,000
shares; 16,972,905 shares issued and outstanding 170 170 170
Additional paid-in capital 22,696 22,696 22,696
Unrealized gain (loss) on securities available for sale (1,634) 3,495 (576)
Retained earnings 366,238 357,711 345,648
- - --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 387,470 384,072 367,938
- - --------------------------------------------------------------------------------------------------------------------------
$4,652,584 $4,656,267 $4,745,904
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
DOWNEY FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
(Dollars in Thousands, Except Per Share Data) 1996 1995
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $78,050 $68,655
U.S. Treasury and agency securities 1,921 2,596
Mortgage-backed securities 1,033 1,346
Other investments 1,545 992
Yield maintenance on covered assets, net - 177
- - ----------------------------------------------------------------------------------------------------
Total interest income 82,549 73,766
- - ----------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 45,490 40,825
Borrowings 5,962 10,656
- - ----------------------------------------------------------------------------------------------------
Total interest expense 51,452 51,481
- - ----------------------------------------------------------------------------------------------------
NET INTEREST INCOME 31,097 22,285
PROVISION FOR LOAN LOSSES 1,171 3,556
- - ----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 29,926 18,729
- - ----------------------------------------------------------------------------------------------------
OTHER INCOME, NET:
Loan and deposit related fees 1,617 1,255
Real estate and joint ventures held for investment, net:
Net gains (losses) on sales of wholly owned real estate (19) 2,212
Reduction of loss on real estate and joint ventures 1,470 384
Operations, net 569 1,187
Secondary marketing activities:
Loan servicing fees 262 368
Net gains on sales of loans and mortgage-backed securities 555 32
Net gains on sales of investment securities available for sale 4,473 -
Reduction of loss on investment in lease residual - 207
Commissions earned on insurance and related products 265 -
Other 420 501
- - ----------------------------------------------------------------------------------------------------
Total other income, net 9,612 6,146
- - ----------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Salaries and related costs 10,702 9,912
Premises and equipment costs 2,854 2,840
SAIF insurance premiums and regulatory assessment 2,357 2,089
Professional fees 708 628
Other general and administrative expense 3,162 2,686
- - ----------------------------------------------------------------------------------------------------
Total general and administrative expense 19,783 18,155
- - ----------------------------------------------------------------------------------------------------
Net operation of real estate acquired in settlement of loans 1,047 1,042
Amortization of excess of cost over fair value of net assets acquired 132 133
- - ----------------------------------------------------------------------------------------------------
Total operating expense 20,962 19,330
- - ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 18,576 5,545
Income taxes 8,012 2,335
- - ----------------------------------------------------------------------------------------------------
NET INCOME $ 10,564 $ 3,210
- - ----------------------------------------------------------------------------------------------------
PER SHARE INFORMATION:
NET INCOME $ 0.62 $ 0.19
- - ----------------------------------------------------------------------------------------------------
DIVIDENDS PAID $ 0.120 $ 0.114
- - ----------------------------------------------------------------------------------------------------
Weighted average shares outstanding 16,972,905 16,972,905
- - ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
DOWNEY FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
(In Thousands) 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,564 $ 3,210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,025 1,790
Provision for losses on loans, leases, real estate acquired in settlement
of loans and investments in real estate and joint ventures 455 3,642
Net gains on sales of loans and mortgage-backed securities, investment
securities, real estate and other assets (5,067) (2,307)
Interest capitalized on loans (negative amortization) (3,251) (615)
Federal Home Loan Bank dividends (507) (451)
Net change in loans receivable - held for sale (5,919) (398)
(Increase) decrease in other assets 8,978 (2,594)
Increase (decrease) in accounts payable and accrued liabilities 1,218 (4,888)
Other, net (9,244) (2,115)
- - -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) for operating activities 7,252 (4,726)
- - -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Sales of investment securities available for sale 189,541 -
Sales of wholly-owned real estate and real estate acquired in settlement of loans 6,254 9,140
Purchase of:
U.S. Treasury and agency obligations and other investment securities (160,455) (10,000)
Mortgage-backed securities available for sale (25,368) -
Loans receivable held for investment - (43,624)
Securities under resale agreements (40,000) -
Loans receivable originated - held for investment (net of refinances of
$21,895 and $9,216 at March 31, 1996 and 1995, respectively (159,780) (146,130)
Principal payments on loans receivable and mortgage-backed
securities held for investment and available for sale 200,651 84,397
Net change in undisbursed loan funds (3,195) (6,129)
Investments in real estate held for investment (198) (256)
Investments in joint ventures (33) (544)
Reimbursements and distributions from joint ventures (12) 879
Other, net (3,927) (3,951)
- - -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) for investing activities $ 3,478 $(116,218)
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
See accompanying notes to consolidated financial statements.
DOWNEY FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
March 31,
-----------------------
(In Thousands) 1996 1995
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 100,437 $ 217,685
Proceeds from Federal Home Loan Bank advances 25,000 514,000
Repayments of Federal Home Loan Bank advances (64,578) (633,000)
Net decrease in other borrowings (64,424) (1,615)
Cash dividends (2,037) (1,939)
- - ------------------------------------------------------------------------------------------------------
Net cash provided (used) for financing activities (5,602) 95,131
- - ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,128 (25,813)
Cash and cash equivalents at beginning of year 65,830 60,851
- - ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 70,958 $ 35,038
- - ------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest $ 53,070 $ 50,429
Income taxes (27) 531
Supplemental disclosure of non-cash investing:
Real estate acquired in settlement of loans 8,426 5,405
Loans to facilitate the sale of real estate acquired in settlement of loans 4,336 2,561
- - ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (1) - BASIS OF PRESENTATION
In the opinion of Downey Financial Corp. and subsidiaries ("Downey"),
the accompanying consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of Downey's financial condition as of March 31, 1996, December 31, 1995 and
March 31, 1995, and the results of operations and changes in cash flows for the
three months ended March 31, 1996 and 1995. Certain prior period amounts have
been reclassified to conform to the current period presentation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial operations and are in compliance with the instructions for Form 10-Q
and therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows. The
following information under the heading Management's Discussion and Analysis of
the Financial Condition and Results of Operations is written with the
presumption that the interim consolidated financial statements will be read in
conjunction with Downey's Annual Report on Form 10-K for the year ended December
31, 1995, which contains among other things, a description of the business, the
latest audited consolidated financial statements and notes thereto, together
with Management's Discussion and Analysis of the Financial Position and Results
of Operations as of December 31, 1995, and for the year then ended. Therefore,
only material changes in financial condition and results of operations are
discussed in the remainder of Part I.
NOTE (2) - MORTGAGE SERVICING RIGHTS
Downey adopted, effective January 1, 1996, Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights, an
Amendment to FASB No. 65," ("SFAS 122"). In accordance with SFAS 122, Downey
capitalizes mortgage servicing rights ("MSRs") related to mortgage loans
originated for sale. The total cost of the mortgage loans designated for sale is
allocated to the MSRs and the mortgage loans without the MSRs based on their
relative fair values. The MSRs are included in other assets and as a component
of gain on sale of loans. The MSRs are amortized over the projected servicing
period as a component of loan servicing fees.
The MSRs are periodically reviewed for impairment based on their fair
value. The fair value of the MSRs, for the purposes of impairment, is measured
using a discounted cash flow analysis based on Downey's estimated servicing
costs, market prepayment rates and market-adjusted discount rates. Impairment is
measured on a disaggregated basis based on predominant risk characteristics of
the underlying mortgage loans. The risk characteristics used by Downey for the
purposes of capitalization and impairment evaluation include loan amount, loan
type, interest rate tranches, loan origination date, loan term and collateral
type. Impairment losses are recognized through a valuation allowance, with any
associated provision recorded as a component of loan servicing fees.
NOTE (3) - NET INCOME PER SHARE
Net income per share of common stock is based upon the weighted average
number of shares of common stock outstanding during the period (16,972,905 in
1996 and 1995). No effect has been given to options outstanding under Downey's
stock option plans as there was no material dilutive effect.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Net income for the first quarter of 1996 totaled $10.6 million, or $0.62
per share, more than three times the $3.2 million, or $0.19 per share, earned in
the first quarter of 1995.
The increase in net income between first quarters reflected increases in
both net interest income and other income, and a decline in provision for loan
losses. Net interest income increased $8.8 million or 39.5% due to a higher
effective interest spread. Total other income was $3.5 million higher as a $4.5
million gain from the sale of U.S. Treasury securities carried in an available
for sale portfolio more than offset a decline in gains from sales of wholly
owned real estate. The provision for loan losses declined by $2.4 million as the
year-ago quarter included a provision for a large commercial real estate loan
placed on non-accrual status. These positive factors were partially offset by a
$1.6 million increase in general and administrative expense.
For the first quarter of 1996, the return on average assets was 0.91% and
the return on average equity was 10.97%.
At March 31, 1996, assets totaled $4.7 billion, essentially unchanged from
a year ago. Single family loan originations totaled $189.3 million in the first
quarter of 1996, of which $121.8 million were for portfolio and $67.5 million
were for sale. This compares to $190.3 in the first quarter of 1995 which
included $43.6 million of purchases from correspondents. In addition to single
family loans, $59.9 million of other loans were originated in the quarter
including $33.4 million of automobile loans and $14.1 million of construction
loans.
Non-performing assets declined $2.7 million during the quarter to $94.5
million or 2.03% of total assets.
Based on rules in effect at March 31, 1996, Downey Savings and Loan
Association, F.A. (the "Bank") had core and tangible capital ratios of 7.46% and
a risk-based capital ratio of 14.29%. These capital levels are well above the
"well capitalized" standards of 5% and 10%, respectively, as defined by
regulation. When calculated on a fully phased-in basis where the full amount of
the Bank's nonincludable investment in real estate is deducted from capital, the
core and tangible capital ratios were 7.04% and the risk-based capital ratio was
13.61%, also exceeding the "well capitalized" standards.
6
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $31.1 million in the first quarter of 1996, up $8.8
million or 39.5% from the same period last year. The improvement between first
quarters reflected a higher effective interest spread. The effective interest
spread increased from 1.97% in the year-ago first quarter to 2.80% in the
current quarter. The improvement in the effective interest spread reflects
several factors. First, the year-ago loan portfolio contained a high proportion
(approximately 27%) of adjustable rate mortgages ("ARMs") in their initial low
incentive rate period. Those ARMs have now repriced to fully-indexed levels. In
contrast, the proportion of ARMS in their initial incentive rate period during
the first quarter of 1996 was approximately 5%. Second, the effective interest
spread was favorably impacted by the declining interest rate environment which
began in 1995 as Downey's funding sources have repriced downward more rapidly
than the ARM portfolio. This was particularly true for those ARMs tied to the
Federal Home Loan Bank ("FHLB") Eleventh District Cost of Funds Index ("COFI")
as that index lags changes in market interest rates. Earning assets averaged
$4.4 billion in the current quarter, essentially unchanged from a year ago.
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and resultant
yields, the interest expense on average-interest bearing liabilities and the
resultant costs, expressed both in dollars and rates. The table also sets forth
the net interest income, the interest rate spread and the effective interest
spread. The effective interest spread, which reflects the relative level of
interest-earning assets to interest-bearing liabilities, equals (i) the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities, (ii) divided by average interest-
earning assets for the period. The table also sets forth the net earning balance
(the difference between the average balance of interest-earning assets and the
average balance of interest-bearing liabilities) for the periods indicated. Non-
accrual loans are included in the average interest-earning assets balance.
Interest from non-accrual loans is included in interest income only to the
extent that payments are received and to the extent that Downey believes it will
recover the remaining principal balance of the loan. Average balances for the
quarter are computed using the average of each month's daily average balance
during the period.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------------------------------------------------------------
March 31, 1996 December 31, 1995 March 31, 1995
----------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars In Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $4,099,899 $77,698 7.58% $4,127,237 $77,870 7.55% $4,184,909 $68,518 6.55%
Mortgage-backed securities 59,255 1,033 6.97 53,386 913 6.84 81,920 1,346 6.57
Interest-bearing joint venture advances 30,493 352 4.62 42,435 322 3.04 40,678 314 3.09
Investment securities 256,220 3,466 5.44 217,713 3,542 6.45 222,834 3,588 6.53
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 4,445,867 82,549 7.43 4,440,771 82,647 7.44 4,530,341 73,766 6.51
Non-interest-earning assets 211,008 222,065 221,477
- - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $4,656,875 $4,662,836 $4,751,818
===================================================================================================================================
Interest-bearing liabilities:
Deposits $3,817,568 $45,490 4.79% $3,784,502 $46,501 4.87% $3,659,956 $40,825 4.52%
Borrowings 404,780 5,962 5.92 440,951 6,850 6.16 661,099 10,656 6.54
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,222,348 51,452 4.90 4,225,453 53,351 5.01 4,321,055 51,481 4.83
Non-interest-bearing liabilities 49,310 60,878 64,619
Stockholders' equity 385,217 376,505 366,144
- - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $4,656,875 $4,662,836 $4,751,818
===================================================================================================================================
Net interest income/interest rate spread $31,097 2.53% $29,296 2.44% $22,285 1.68%
Excess of interest-earning assets over
interest-bearing liabilities $ 223,519 $ 215,318 $ 209,286
Effective interest rate spread 2.80% 2.64% 1.97%
===================================================================================================================================
</TABLE>
7
<PAGE>
Changes in Downey's net interest income are a function of both changes in
rates and changes in volumes of interest-earning assets and interest-bearing
liabilities. The following table sets forth information regarding changes in
interest income and expense for Downey for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to: (i) changes in volume (changes in volume
multiplied by comparative period rate); (ii) changes in rate (changes in rate
multiplied by comparative period volume); and (iii) change in rate-volume
(change in rate multiplied by change in volume). Interest-earning asset and
interest-bearing liability balances used in the calculations represent quarterly
average balances computed using the average of each month's daily average
balance during the period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
March 31,1996 versus March 31,1995
Changes Due To
-----------------------------------------------
Rate/
(Dollars In Thousands) Volume Rate Volume Net
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $(1,392) $10,791 $(219) $ 9,180
Mortgage-backed securities (372) 82 (23) (313)
Interest-bearing joint venture advances (79) 156 (39) 38
Investment securities 435 (485) (72) (122)
- - -----------------------------------------------------------------------------------------------
Total interest income (1,408) 10,544 (353) 8,783
- - -----------------------------------------------------------------------------------------------
Interest expense:
Deposits 1,913 2,639 113 4,665
Borrowings (3,917) (971) 194 (4,694)
- - -----------------------------------------------------------------------------------------------
Total interest expense (2,004) 1,668 307 (29)
- - -----------------------------------------------------------------------------------------------
Change in net interest income $ 596 $ 8,876 $(660) $ 8,812
- - -----------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES
Provision for loan losses was $1.2 million in the current quarter compared
to $3.6 million in the year-ago quarter. The provision in the year-ago quarter
included additional valuation allowances associated with a $30.2 million
commercial real estate loan as the borrower filed bankruptcy during the quarter.
For information regarding the allowance for loan losses, see "Asset Quality -
Valuation Allowances" on page 19.
OTHER INCOME
Total other income was $9.6 million in the first quarter of 1996, up $3.5
million from the year-ago quarter. The increase between first quarters reflected
a $4.5 million gain from the sale of U.S. Treasury securities carried in an
available for sale portfolio. Also contributing to the improvement were
increases in net gains on sales of loans, loan and deposit related fees, and net
insurance commission income. Net gains on sales of loans increased $0.5 million
which represents the impact of Downey's adoption of SFAS 122 (see Note 2 of
Notes to Consolidated Financial Statements on page 5). Partially offsetting
those increases was a decline in income associated with real estate held for
investment. That category declined, in the aggregate, by $1.8 million between
first quarters to $2.0 million due primarily to a decline in net gains from the
sale of wholly owned real estate.
8
<PAGE>
The following table presents a breakdown of the key components comprising
income from real estate and joint venture operations.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations, net:
Rental operations, net of expenses $ 853 $ 867 $1,033 $ 872 $ 939
Equity in net loss from joint ventures (709) (329) (768) (465) (114)
Interest from joint ve nture advances 425 393 382 377 362
- - ----------------------------------------------------------------------------------------------------------------------------------
Total operations, net 569 931 647 784 1,187
Net gains (losses) on sales of wholly-owned real estate (19) 2,333 (2) (4) 2,212
Recovery of losses on real estate and joint ventures 1,470 1,104 50 1,378 384
- - ----------------------------------------------------------------------------------------------------------------------------------
Income from real estate and joint venture operations $2,020 $4,368 $ 695 $2,158 $3,783
==================================================================================================================================
</TABLE>
OPERATING EXPENSE
Operating expense totaled $21.0 million in the first quarter, up $1.6
million or 8.4% from the first quarter of 1995. The increase was explained by
higher general and administrative costs, as the costs associated with the net
operation of real estate acquired in settlement of loans was unchanged at $1.0
million. The increase in general and administrative expense reflects several
factors including the commencement of the automobile finance activity in the
second quarter of 1995, increased deposit insurance premiums due to higher
deposit levels, and that the year-ago quarter included a group medical insurance
premium refund.
PROVISION FOR INCOME TAXES
Income taxes for the first quarter totaled $8.0 million, resulting in an
effective tax rate of 43.1%, compared to $2.3 million and 42.1% for the like
quarter of a year ago.
9
<PAGE>
FINANCIAL CONDITION
LOANS AND MORTGAGE-BACKED SECURITIES
Total loans and mortgage-backed securities, including those held for sale,
decreased $11.5 million during the first quarter to a total of $4.2 billion, or
89.4% of assets, at March 31, 1996. This decline primarily reflected a $74.0
million decline in the residential one-to-four unit loan portfolio held for
investment as repayments and transfers to real estate acquired in settlement of
loans exceeded portfolio originations. This decline was partially offset by
increases in automobile loans, construction loans, loans held for sale and
mortgage-backed securities available for sale.
The following table sets forth originations of loans held for investment
and loans originated for sale.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans originated for investment:
Residential - one-to-four ARMs(1) $113,984 $109,080 $ 73,830 $ 70,970 $186,425
Residential - one-to-four fixed(2) 7,831 4,861 4,357 3,673 997
Other 59,860 57,516 35,039 29,892 11,548
- - ------------------------------------------------------------------------------------------------------------------
Total loans originated for investment 181,675 171,457 113,226 104,535 198,970
Loans originated for sale (primarily
residential - fixed) 67,502 48,027 29,881 12,745 2,843
- - ------------------------------------------------------------------------------------------------------------------
Total loans originated $249,177 $219,484 $143,107 $117,280 $201,813
==================================================================================================================
</TABLE>
(1) Includes for the three months ended June 30, 1995, and March 31, 1995, $0.6
million, and $43.6 million, respectively, in loans purchased through
correspondent lending relationships.
(2) Primarily represents loans to facilitate the sale of real estate acquired
in settlement of loans and loans that meet certain yield and other approved
guidelines.
Originations of one-to-four unit residential loans totaled $189.3 million
in the first quarter of 1996, of which $121.8 million were for portfolio and
$67.5 million were for sale. This was 17% higher than the $162.0 million
originated in the fourth quarter of 1995, and essentially unchanged from the
$190.3 million originated in the year-ago quarter. During the current quarter,
59% of Downey's residential one-to-four originations represented refinancings of
existing loans (existing Downey loans were 12%). This is up from 48% (existing
Downey loans were 11%) during the 1995 fourth quarter, and 36% (existing Downey
loans were 6%) in the year-ago first quarter. In addition to single family
loans, $59.9 million of other loans were originated in the quarter including
$33.4 million of automobile loans and $14.1 million of construction loans.
During the current quarter, loan originations for investment consisted
primarily of ARMs tied to COFI, an index which lags the movement in market
interest rates. This experience is similar to that of recent quarters.
Increasingly, the majority of ARM originations reprice monthly, however, Downey
also originates ARM loans which reprice semi-annually and annually. With respect
to ARMs that primarily adjust monthly, there is a lifetime interest rate cap,
but no other specified limit on periodic interest rate adjustments. Instead,
monthly adjustment ARMs have a periodic cap on changes in the required monthly
payments, which adjust annually. Monthly adjustment ARMs allow for negative
amortization (the addition to loan principal of accrued interest that exceeds
the required loan payment). There is a limit on the amount of negative
amortization, such that the principal plus the added amount cannot exceed 110%
of the original loan amount. At March 31, 1996, $1.2 billion of the ARMs in
Downey's loan portfolio were subject to negative amortization of which $8.6
million represented the amount of negative amortization added to the unpaid loan
balance.
Downey also continues to originate residential fixed interest rate mortgage
loans to meet consumer demand, but intends to sell the majority of all such
loans originated. Sales of loans originated by Downey were $62.2 million for the
first quarter of 1996, compared to $41.3 million in the previous quarter and
$2.3 million for the first quarter of 1995. All were secured by residential one-
to-four unit property.
At March 31, 1996, Downey had commitments to fund loans amounting to $131.7
million, undrawn lines of credit of $70.5 million, loans in process of $28.0
million and no letters of credit. Downey believes its current sources of funds
will enable it to meet these obligations while exceeding all regulatory
liquidity requirements.
10
<PAGE>
The following table sets forth the origination, purchase and sale activity
relating to loans and mortgage-backed securities Downey held for investment and
held for sale.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT PORTFOLIO:
Loans originated:
Loans secured by real estate:
Residential:
One-to-four units:
Adjustable $ 94,120 $ 97,234 $ 73,830 $ 70,400 $142,801
Adjustable - fixed for first three or five years 19,864 11,846 - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total adjustable 113,984 109,080 73,830 70,400 142,801
Fixed 7,831 4,861 4,357 3,673 997
Five or more units
Adjustable 6,393 - - - 128
Fixed 2,148 270 149 - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total residential 130,356 114,211 78,336 74,073 143,926
Commercial real estate 57 5,509 457 - 4,663
Construction 14,110 15,078 8,053 5,800 -
Land - 12,906 - - -
Non-mortgage:
Commercial - unsecured 1,400 1,000 - 115 -
Automobile 33,421 19,275 22,873 19,405 681
Other consumer 2,331 3,478 3,507 4,572 6,076
- - ------------------------------------------------------------------------------------------------------------------------------------
Total loans originated 181,675 171,457 113,226 103,965 155,346
Real estate loans purchased(1) - - - 570 43,624
- - ------------------------------------------------------------------------------------------------------------------------------------
Total loans originated and purchased 181,675 171,457 113,226 104,535 198,970
Loan repayments (218,204) (184,714) (165,222) (101,186) (89,967)
Other net changes(2) (1,730) (23,181) (12,112) (11,716) (663)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loans held for investment (38,259) (36,438) (64,108) (8,367) 108,340
Mortgage-backed securities held to maturity, net:
Repayments - (1,695) (1,317) (1,424) (1,152)
Mortgage-backed securities transferred to available for sale - (33,555) - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in mortgage-backed securities, net - (35,250) (1,317) (1,424) (1,152)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loans and mortgage-backed
securities held for investment (38,259) (71,688) (65,425) (9,791) 107,188
- - ------------------------------------------------------------------------------------------------------------------------------------
SALE PORTFOLIO:
Residential, one-to-four units:
Originated whole loans 67,502 48,027 29,881 12,745 2,843
Loans transferred from (to) the investment portfolio 1,215 - - - (100)
Originated whole loans sold (62,180) (41,329) (28,554) (8,530) (2,312)
Other net changes (63) (7) (2) - (1)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase in loans held for sale 6,474 6,691 1,325 4,215 430
- - ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities, net:
Purchased 25,368 - - - -
Transfer from mortgage-backed securities held to maturity - 33,555 - - -
Sold - - - (21,372) -
Repayments (4,342) (2,086) (1,159) (1,123) (2,494)
Other net changes (709) 1,439 121 274 835
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in mortgage-backed securities
available for sale 20,317 32,908 (1,038) (22,221) (1,659)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loans and mortgage-backed
securities held for sale and available for sale 26,791 39,599 287 (18,006) (1,229)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total net increase (decrease) in loans and mortgage-backed
securities $ (11,468) $ (32,089) $ (65,138) $ (27,797) $105,959
====================================================================================================================================
</TABLE>
(1) Primarily one-to-four unit residential loans.
(2) Primarily includes borrowings against and repayments of construction loans
and lines of credit, changes in loss allowances, loans transferred to real
estate acquired in settlement of loans and interest capitalized on loans
(negative amortization).
11
<PAGE>
The following table sets forth the composition of Downey's loan and
mortgage-backed securities portfolios held for investment, and held for sale by
type of loan at the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT PORTFOLIO:
Loans secured by real estate:
Residential:
One-to-four units:
Adjustable $3,413,503 $3,486,774 $3,536,084 $3,601,504 $3,609,923
Fixed 169,057 169,738 174,943 179,054 188,569
- - -----------------------------------------------------------------------------------------------------------------------------------
Total one-to-four units 3,582,560 3,656,512 3,711,027 3,780,558 3,798,492
Five or more units:
Adjustable 50,245 44,438 46,757 47,260 48,784
Fixed 14,897 12,883 14,680 14,751 14,875
Commercial real estate:
Adjustable 163,737 170,498 169,821 173,497 174,452
Fixed 103,021 100,085 104,133 112,797 120,382
Construction 37,066 28,593 16,215 12,047 7,754
Land 18,782 21,867 9,285 9,333 9,350
Non-mortgage:
Commercial:
Secured 250 250 250 250 250
Unsecured 13,896 12,614 12,117 12,239 12,305
Consumer:
Automobile 82,093 56,127 41,690 21,845 3,390
Other consumer 48,405 50,945 51,771 52,984 53,700
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans held for investment 4,114,952 4,154,812 4,177,746 4,237,561 4,243,734
Less:
Undisbursed loan funds (28,865) (29,942) (16,704) (11,252) (9,189)
Unearned fees and discounts 7,389 7,412 7,610 7,555 7,428
Allowance for estimated loss (27,396) (27,943) (27,875) (28,979) (28,721)
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans held for investment, net 4,066,080 4,104,339 4,140,777 4,204,885 4,213,252
- - -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities held to maturity, net:
Adjustable - - 17,872 18,555 19,325
Fixed - - 17,378 18,012 18,666
- - -----------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities held to maturity, net - - 35,250 36,567 37,991
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed securities held for
investment 4,066,080 4,104,339 4,176,027 4,241,452 4,251,243
- - -----------------------------------------------------------------------------------------------------------------------------------
SALE PORTFOLIO, NET:
Loans held for sale (all one-to-four units):
Adjustable 1,028 238 - - -
Fixed 18,505 12,821 6,368 5,043 828
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans held for sale 19,533 13,059 6,368 5,043 828
Mortgage-backed securities available for sale:
Adjustable 30,579 34,355 19,168 20,206 42,427
Fixed 41,814 17,721 - - -
- - -----------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities available for sale 72,393 52,076 19,168 20,206 42,427
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed securities
held for sale and available for sale 91,926 65,135 25,536 25,249 43,255
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed securities $4,158,006 $4,169,474 $4,201,563 $4,266,701 $4,294,498
===================================================================================================================================
</TABLE>
12
<PAGE>
Loans held for sale are carried at the lower of cost or market and, at
March 31, 1996, reflect an unrealized loss of $46,000 which is reflected in net
gains on sales of loans and mortgage-backed securities.
Mortgage-backed securities available for sale are carried at fair value
and, at March 31, 1996, reflect an unrealized gain of $0.2 million, compared to
an unrealized gain of $0.9 million at December 31, 1995. The current quarter-
end unrealized gain, less the associated tax effect of $0.1 million, is
reflected as a separate component of stockholders' equity until realized.
INVESTMENTS IN REAL ESTATE AND JOINT VENTURES
Downey's investment in real estate and joint ventures amounted to $42.9
million at March 31, 1996, compared to $42.3 million at December 31, 1995, and
$53.0 million at March 31, 1995.
The following table is a summary of the activity of Downey's allowance for
real estate held for investment for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $34,338 $35,442 $35,492 $36,870 $37,198
Provision (1,470) (1,104) (50) (1,378) (384)
Charge-offs - - - - -
Recoveries - - - - 56
- - -------------------------------------------------------------------------------------------------------
Balance at end of period $32,868 $34,338 $35,442 $35,492 $36,870
=======================================================================================================
</TABLE>
In addition to losses charged against the allowance for loan losses, Downey has
recorded losses on real estate acquired in settlement of loans by direct write-
off to net operations of real estate acquired in settlement of loans and against
an allowance for losses specifically established for such assets. The following
table is a summary of the activity of Downey's allowance for real estate
acquired in settlement of loans for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $1,217 $1,031 $ 804 $ 747 $ 743
Provision 754 426 771 624 677
Charge-offs (747) (240) (544) (567) (673)
Recoveries - - - - -
- - -------------------------------------------------------------------------------------------------------
Balance at end of period $1,224 $1,217 $1,031 $ 804 $ 747
=======================================================================================================
</TABLE>
DEPOSITS
--------
At March 31, 1996, deposits totaled $3.9 billion, up $115.6 million or
3.1% from the year-ago quarter end, and up $100.4 million or 2.6% from the end
of the fourth quarter of 1995. The increase between first quarters was in
certificates of deposit, and to a lesser extent, passbook and checking
accounts. The increase in these accounts, however, was tempered by a decline
in the level of money market accounts. The following table sets forth
information concerning Downey's deposits and average rates paid at the dates
indicated.
13
<PAGE>
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995 September 30, 1995 June 30, 1995 March 31, 1995
------------------- -------------------- ------------------- -------------------- ---------------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
(Dollars in Thousands) Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Regular passbook 2.65% $ 399,198 2.59% $ 387,986 2.48% $ 375,474 2.41% $ 365,847 2.26% $ 358,697
Money market accounts 2.30 113,103 2.30 119,891 2.30 120,781 2.30 126,638 2.30 139,347
Checking accounts 0.72 316,109 0.76 297,014 0.81 291,593 0.85 273,139 0.86 281,434
Certificates of deposit:
Less than 3.00% 2.77 50,460 2.82 57,786 2.83 66,454 2.82 56,195 2.89 45,227
3.00-3.49 3.16 974 3.21 1,392 3.28 2,446 3.23 21,060 3.25 68,349
3.50-3.99 3.81 4,081 3.75 7,781 3.85 14,530 3.84 82,110 3.80 169,321
4.00-4.49 4.21 84,523 4.18 99,758 4.19 137,620 4.25 174,281 4.26 247,644
4.50-4.99 4.86 319,664 4.88 262,065 4.81 236,352 4.75 217,719 4.70 212,183
5.00-5.99 5.48 2,052,359 5.52 1,863,474 5.57 1,489,966 5.56 1,106,762 5.44 1,078,151
6.00-6.99 6.46 480,486 6.46 596,803 6.37 957,526 6.35 1,209,652 6.36 1,041,888
7.00-7.99 7.18 69,465 7.27 94,768 7.28 107,321 7.30 119,203 7.31 118,875
8.00-8.99 8.18 236 8.31 1,245 8.22 6,759 8.23 10,303 8.19 13,360
9.00 and greater - - 9.35 258 9.35 252 9.36 397 9.62 607
- - ----------------------------------------------------------------------------------------------------------------------------------
Total certificates
of deposit 5.53 3,062,248 5.61 2,985,330 5.70 3,019,226 5.71 2,997,682 5.52 2,995,605
- - ----------------------------------------------------------------------------------------------------------------------------------
Total deposits 4.75% $3,890,658 4.81% $3,790,221 4.90% $3,807,074 4.92% $3,763,306 4.74% $3,775,083
==================================================================================================================================
</TABLE>
BORROWINGS
During the 1996 first quarter borrowings declined $104.0 million to $332.2
million, reflecting declines in all categories. The following table sets forth
information concerning Downey's FHLB advances and other borrowings at the dates
indicated.
<TABLE>
<CAPTION>
At Periods Ended
----------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(Dollars in Thousands) 1996 1995 1995 1995 1995
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FHLB advances $181,137 $220,715 $212,995 $319,800 $292,800
Other borrowings:
Reverse repurchase agreements - 16,099 38,400 30,768 52,547
Commercial paper 148,358 196,602 196,917 197,091 197,717
Industrial revenue bonds - - 6,420 6,421 6,421
Real estate notes 2,721 2,802 4,359 4,699 4,676
- - ------------------------------------------------------------------------------------------------------------------------
Total borrowings $332,216 $436,218 $459,091 $558,779 $554,161
Weighted average rate on borrowings during
the period 5.92% 6.16% 6.31% 6.46% 6.54%
========================================================================================================================
Total borrowings as a percentage of total
assets 7.14% 9.37% 9.80% 11.78% 11.68%
========================================================================================================================
</TABLE>
ASSET/LIABILITY MANAGEMENT
The following table sets forth the repricing frequency of Downey's major
asset and liability categories as of March 31, 1996, as well as certain
information regarding the repricing and maturity differences between interest-
earning assets and interest-bearing liabilities ("gap") in future periods. The
repricing frequencies have been determined by reference to projected maturities,
based upon contractual maturities as adjusted for scheduled repayments and
"repricing mechanisms" (provisions for changes in the interest and dividend
rates of assets and liabilities). Prepayment rates are assumed on substantially
all of Downey's loan portfolio based upon its historical loan prepayment
experience and anticipated future
14
<PAGE>
prepayments. Repricing mechanisms on certain of Downey's assets are subject to
limitations, such as caps on the amount that interest rates and payments on
Downey's loans may adjust, and accordingly, such assets do not normally respond
as completely or rapidly as Downey's liabilities to changes in market interest
rates. The interest rate sensitivity of Downey's assets and liabilities
illustrated in the table would vary substantially if different assumptions were
used or if actual experience differed from the assumptions set forth.
<TABLE>
<CAPTION>
Analysis of Repricing Mechanisms
Based Upon Estimates and Assumptions
At March 31,1996
----------------------------------------------------------------------------------------------
Rate Total Percent Within 1 1 - 3 3 - 5 5 - 10 Over
(Dollars in Thousands) % Balance of Total Year Years Years Years 10 Years
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities and
Federal Home Loan
Bank stock (1) 5.79% $ 235,644 5.30% $ 103,639 $ - $132,005 $ - $ -
Loans and mortgage-backed
securities:
Mortgage-backed securities 7.12 72,393 1.63 41,044 14,021 10,170 3,845 3,313
Real estate - mortgage:
Residential:
ARM (2) 7.53 3,455,447 77.65 3,397,014 58,433 - - -
Fixed (2) 8.95 202,941 4.56 65,234 58,440 34,546 32,376 12,345
Commercial (2) 7.06 269,946 6.07 212,067 36,547 20,684 648 -
Construction (2) 9.48 16,260 0.37 16,260 - - - -
Consumer (2)11.43 128,021 2.87 72,383 36,384 19,254 - -
Commercial (2)11.00 12,998 0.29 12,998 - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed
securities 7.70 4,158,006 93.44 3,817,000 203,825 84,654 36,869 15,658
Interest-bearing joint venture
advances 2.69 56,190 1.26 56,190 - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total 7.53% $4,449,840 100.00% $3,976,829 $ 203,825 $216,659 $ 36,869 $ 15,658
- - ------------------------------------------------------------------------------------------------------------------------------------
Deposits and borrowings
Interest bearing deposits:
Fixed maturity deposits (3) 5.53% $3,062,248 72.52% $2,693,355 $ 337,787 $ 30,838 $ 268 -
Money market accounts (4) 2.30 113,103 2.68 113,103 - - - -
Checking accounts (4) 1.00 227,778 5.39 227,778 - - - -
Passbook accounts (4) 2.66 399,183 9.45 399,183 - - - -
Non-interest bearing deposits 0.00 88,346 2.09 88,346 - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 4.75 3,890,658 92.13 3,521,765 337,787 30,838 268 -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total borrowings 5.77 332,216 7.87 259,839 60,826 6,030 5,521 -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total 4.83% $4,222,874 100.00% $3,781,604 $ 398,613 $ 36,868 $ 5,789 $ -
- - ------------------------------------------------------------------------------------------------------------------------------------
Excess (short fall) of
interest-earning assets
over interest-bearing
liabilities $ 226,966 $ 195,225 $(194,788) $179,791 $ 31,080 $ 15,658
Impact of hedging activities - - - - -
Cumulative gap 195,225 437 180,228 211,308 226,966
Cumulative gap - as a % of total assets:
March 31, 1996 4.20% 0.01% 3.87% 4.54% 4.88%
December 31, 1995 6.15 1.32 3.77 4.35 4.66
March 31, 1995 8.95 1.29 2.94 4.00 4.66
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon contractual maturity.
(2) Based upon contractual maturity, repricing date, and projected repayments
and prepayments of principal.
(3) Based upon contractual maturity or repricing date.
(4) Subject to immediate repricing.
The one year gap at March 31, 1996, was a positive 4.20% (i.e., more
interest earning assets reprice within one year than interest bearing
liabilities). This compares to a positive one year gap of 6.15% at December
31, 1995 and 8.95% at March 31, 1995. Downey's strategy of emphasizing the
origination of adjustable rate mortgages continues to be pursued. For the
twelve months ended March 31, 1996, Downey originated and purchased for
investment $447 million of adjustable rate loans and mortgage-backed securities
which represented approximately 78% of all loans and mortgage-backed securities
originated and purchased for investment during the period.
At March 31, 1996, 99% of Downey's interest-earning assets mature, reprice
or are estimated to prepay within five years, unchanged from December 31, 1995
and up slightly from 98% at March 31, 1995. At March 31, 1996, loans and
15
<PAGE>
mortgage-backed securities with adjustable interest rates represented 90% of
Downey's loans and mortgage-backed securities portfolios. During the first
quarter of 1996, Downey continued to offer residential fixed rate loan products
to its customers primarily for sale in the secondary market. Downey prices and
originates such fixed rate mortgage loans for sale into the secondary market in
order to increase opportunities for originating ARMs and generate fee and
servicing income. Downey does originate fixed rate loans for portfolio to
facilitate the sale of real estate acquired in settlement of loans and which
meet certain yield and other approved guidelines.
At March 31, 1996, $3.9 billion or 93% of the total loan portfolio
(including mortgage-backed securities) consisted of adjustable rate loans,
construction loans, and loans with a due date of five years or less, compared to
$4.0 billion or 95%, $4.1 billion or 94%, at December 31, 1995, and March 31,
1995, respectively.
The following table sets forth on a consolidated basis the interest rate
spread on Downey's interest-earning assets and interest-bearing liabilities as
of the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
1996 1995 1995 1995 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted average yield:
Loan and mortgage-backed securities portfolio 7.70% 7.67% 7.56% 7.32% 6.84%
Interest-bearing joint venture advances 2.69 2.72 2.77 2.76 2.23
Investment securities 5.79 6.29 6.30 6.15 5.87
- - -----------------------------------------------------------------------------------------------------------------------------------
Earning assets yield 7.53 7.54 7.44 7.21 6.74
- - -----------------------------------------------------------------------------------------------------------------------------------
Weighted average cost:
Savings deposits 4.75 4.81 4.90 4.92 4.74
Borrowings:
FHLB advances 6.01 6.07 6.15 6.23 6.44
Other borrowings 5.49 5.62 5.82 6.06 6.22
- - -----------------------------------------------------------------------------------------------------------------------------------
Combined borrowings 5.77 5.84 5.97 6.16 6.34
- - -----------------------------------------------------------------------------------------------------------------------------------
Combined funds 4.83 4.92 5.01 5.08 4.95
- - -----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.70% 2.62% 2.43% 2.13% 1.79%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average yield on the loan and mortgage-backed securities
portfolios at March 31, 1996, increased to 7.70%, compared to 7.67% at December
31, 1995, and 6.84% at March 31, 1995. At March 31, 1996, the single family ARM
portfolio, including mortgage-backed securities, totaled $3.4 billion with a
weighted average rate of 7.53%, compared to $3.5 billion with a weighted average
rate of 7.51% at December 31, 1995, and $3.7 billion with a weighted average
rate of 6.65% at March 31, 1995.
ASSET QUALITY
Non-Performing Assets
Non-performing assets decreased during the quarter by $2.7 million to $94.5
million at March 31, 1996, or 2.03% of assets. All of Downey's non-performing
assets at March 31, 1996, were located in California, with the exception of one
property acquired in settlement of a loan located in Arizona.
16
<PAGE>
The following table summarizes the non-performing assets of Downey at the
dates indicated.
<TABLE>
<CAPTION>
March 31, December 31, September 30, June 30, March 31,
(Dollars in Thousands) 1996 1995 1995 1995 1995
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One-to-four unit residential $24,551 $25,587 $26,429 $24,553 $27,284
Other 50,259 52,754 55,684 53,315 57,572
- - -------------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 74,810 78,341 82,113 77,868 84,856
Real estate acquired in settlement of loans, net(1) 19,454 18,854 15,876 13,577 12,667
Repossessed automobiles 239 - - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Gross non-performing assets $94,503 $97,195 $97,989 $91,445 $97,523
- - -------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses(2) $27,396 $27,943 $27,924 $29,028 $28,928
Non-performing assets as a percentage of total assets 2.03% 2.09% 2.09% 1.93% 2.05%
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes real estate acquired in settlement of loans covered under the
Butterfield Assistance Agreement at September 30, 1995, June 30, 1995 and
March 31, 1995.
(2) Allowance for loan losses does not include the allowance for real estate
and real estate acquired in settlement of loans. Included, however, are
valuation allowances of $49,000, $49,000, and $207,000 at September 30,
1995, June 30, 1995 and March 31, 1995, respectively, relating to a
mortgage-backed security in the held to maturity portfolio.
At March 31, 1996 the recorded investment in loans for which impairment has
been recognized totaled $44.9 million (all of which were on non-accrual status)
and the total allowance for possible losses related to such loans was $4.5
million. During the first quarter of 1996, total interest recognized on the
impaired loan portfolio, on a cash basis, was $0.5 million.
Delinquent Loans
During the 1996 first quarter, total delinquencies decreased $35.1 million
or 42.9%. The decrease was in the 90+ days category, primarily the result of the
restructure of one large commercial real estate loan during the period which has
a carrying value of $28.3 million. The decrease was partially offset by
increases in the 30-59 and 60-89 day categories of $1.6 million and $1.1
million, respectively.
17
<PAGE>
The following table indicates the amounts of Downey's past due loans.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------------------------------------- --------------------------------------------
30-59 60-89 90+ 30-59 60-89 90+
(Dollars in Thousands) Days Days Days(1) Total Days Days Days(1) Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units $15,767 $ 8,093 $20,038 $43,898 $14,047 $ 6,645 $22,303 $42,995
Five or more units 107 - - 107 89 - 447 536
Commercial - - 2,056 2,056 - - 30,675 30,675
Construction - - - - - - - -
Land - - - - - - 6,516 6,516
- - -----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 15,874 8,093 22,094 46,061 14,136 6,645 59,941 80,722
Non-mortgage:
Commercial - - 115 115 - - 115 115
Consumer and other 116 123 210 449 274 422 185 881
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans $15,990 $ 8,216 $22,419 $46,625 $14,410 $ 7,067 $60,241 $81,718
===================================================================================================================================
Delinquencies as a percentage
of total loans 0.38% 0.20% 0.54% 1.12% 0.35% 0.17% 1.44% 1.96%
===================================================================================================================================
<CAPTION>
September 30, 1995 June 30, 1995
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units $14,562 $ 7,004 $22,084 $43,650 $13,105 $ 6,371 $19,907 $39,383
Five or more units 2,400 - - 2,400 74 - 189 263
Commercial 1,946 - 29,592 31,538 - 4,994 31,854 36,848
Construction - - - - - - - -
Land 6,516 - - 6,516 - - - -
- - -----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 25,424 7,004 51,676 84,104 13,179 11,365 51,950 76,494
Non-mortgage:
Commercial 115 - - 115 - - - -
Consumer and other 371 77 280 728 303 16 278 597
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans $25,910 $ 7,081 $51,956 $84,947 $13,482 $11,381 $52,228 $77,091
===================================================================================================================================
Delinquencies as a percentage
of total loans 0.62% 0.17% 1.23% 2.02% 0.32% 0.27% 1.22% 1.81%
===================================================================================================================================
<CAPTION>
March 31, 1995
--------------------------------------------
<S> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units $14,182 $ 6,927 $24,517 $45,626
Five or more units 135 - 1,138 1,273
Commercial 540 30,210 1,133 31,883
Construction - - - -
Land - - - -
- - -----------------------------------------------------------------------------------
Total real estate loans 14,857 37,137 26,788 78,782
Non-mortgage:
Commercial - - - -
Consumer and other 167 143 584 894
- - -----------------------------------------------------------------------------------
Total loans $15,024 $37,280 $27,372 $79,676
===================================================================================
Delinquencies as a percentage
of total loans 0.35% 0.87% 0.64% 1.86%
===================================================================================
</TABLE>
(1) All 90 day or greater delinquencies are on non-accrual status and reported
as part of non-performing assets.
18
<PAGE>
Valuation Allowances
Allowances for losses on all assets (including loans) were $62.1 million,
$64.1 million, and $73.2 million, at March 31, 1996, December 31, 1995, and
March 31, 1995, respectively. For information on valuation allowances
associated with real estate and joint venture loans, see "Investments in Real
Estate and Joint Ventures" on page 13.
The total allowance for possible loan losses was $27.4 million at March
31, 1996, compared to $27.9 million at December 31, 1995, and $28.9 million at
March 31, 1995. Included in the current quarter-end total allowance of $27.4
million was $25.9 million of general loan valuation allowances, of which $2.8
million represents an unallocated portion. These general loan valuation
allowances may be included as a component of risk-based capital, up to a
maximum of 1.25% of risk-weighted assets. Net charge-offs totaled $1.7 million
in the 1996 first quarter, compared to $0.3 million in the year-ago quarter.
Included in the current quarter net charge-offs were $1.2 million associated
with one-to-four unit residential properties and $0.4 million associated with
automobile loans.
The changes in the total valuation allowance for loan losses, including
mortgage-backed securities held to maturity, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(In Thousands) 1996 1995 1995 1995 1995
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $27,943 $27,924 $29,028 $28,928 $25,650
Provision 1,171 1,596 1,805 2,336 3,556
Charge-offs (1,763) (1,580) (3,003) (2,298) (1,136)
Recoveries 45 3 94 62 858
- - -------------------------------------------------------------------------------------------------------
Balance at end of period (1) $27,396 $27,943 $27,924 $29,028 $28,928
=======================================================================================================
</TABLE>
(1) Includes valuation allowances of $49,000, $49,000, and $207,000 at
September 30, 1995, June 30, 1995, and March 31, 1995, respectively,
relating to a mortgage-backed security in the held to maturity portfolio
which was charged-off in December 1995.
19
<PAGE>
The following table indicates the allocation of the total valuation
allowance for loan losses, including mortgage-backed securities held to
maturity, to the various categories of loans, for the dates indicated.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995 September 30, 1995
---------------------------------- ------------------------------- ------------------------------
Gross Allowance Gross Allowance Gross Allowance
Loan Percentage Loan Percentage Loan Percentage
Portfolio to Loan Portfolio to Loan Portfolio to Loan
(Dollars in Thousands) Allowance Balance Balance Allowance Balance Balance Allowance Balance Balance
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units $12,079 $3,582,560 0.34% $12,254 $3,656,512 0.34% $12,925 $3,711,027 0.35%
Five or more units 836 65,142 1.28 895 57,321 1.56 963 61,437 1.57
Commercial 7,577 266,758 2.84 8,456 270,583 3.13 7,806 273,954 2.85
Construction 433 37,066 1.17 335 28,593 1.17 193 16,215 1.19
Land 776 18,782 4.13 973 21,867 4.45 814 9,285 8.77
Commercial non-mortgage:
Secured 3 250 1.00 3 250 1.00 3 250 1.00
Unsecured 269 13,896 1.94 256 12,614 2.03 573 12,117 4.73
Consumer and other:
Automobile 1,695 82,093 2.06 849 56,127 1.51 636 41,690 1.53
Other consumer 928 48,405 1.92 1,122 50,945 2.20 1,162 51,771 2.24
Mortgage-backed
securities held to
maturity (1) - - - - - - 49 35,250 0.14
Not specifically allocated 2,800 - - 2,800 - - 2,800 - -
- - -----------------------------------------------------------------------------------------------------------------------------------
Total loans held
for investment and
mortgage-backed securities
held to maturity $27,396 $4,114,952 0.67% $27,943 $4,154,812 0.67% $27,924 $4,212,996 0.66%
===================================================================================================================================
<CAPTION>
June 30, 1995 March 31, 1995
------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units $12,175 $3,780,558 0.32% $12,268 $3,798,492 0.32%
Five or more units 930 62,011 1.50 1,473 63,659 2.31
Commercial 10,268 286,294 3.59 9,413 294,834 3.19
Construction 145 12,047 1.20 89 7,754 1.15
Land 817 9,333 8.75 816 9,350 8.73
Commercial non-mortgage:
Secured 3 250 1.00 3 250 1.00
Unsecured 460 12,239 3.76 464 12,305 3.77
Consumer and other:
Automobile 280 21,845 1.28 50 3,390 1.47
Other consumer 1,101 52,984 2.08 1,345 53,700 2.50
Mortgage-backed
securities held to
maturity (1) 49 36,567 0.13 207 37,991 0.54
Not specifically allocated 2,800 - - 2,800 - -
- - ----------------------------------------------------------------------------------------------------
Total loans held
for investment and
mortgage-backed securities
held to maturity $29,028 $4,274,128 0.68% $28,928 $4,281,725 0.68%
====================================================================================================
</TABLE>
(1) At June 30, 1994, the Bank established a general valuation allowance
related to a mortgage-backed security in its held to maturity portfolio,
against which a charge-off was recorded during the 1995 fourth quarter,
thereby eliminating the allowance.
CAPITAL RESOURCES AND LIQUIDITY
The primary sources of funds generated in the first quarter of 1996 were
principal repayments (including prepayments, but excluding Downey refinances)
on loans and mortgage-backed securities held for investment and available for
sale of $200.7 million, sales of real estate and investment securities of
$195.8 million, and a net increase in deposits of $100.4 million.
20
<PAGE>
These funds were used primarily to purchase U.S. Treasury and agency
obligations of $160.5 million, originate loans held for investment of $159.8
million (net of Downey refinances of $21.9 million), purchase securities under
resale agreements of $40.0 million, purchase mortgage-backed securities
available for sale of $25.4 million, and repay other borrowings and FHLB
advances which resulted in net declines of $64.4 million and $39.6 million,
respectively.
Loan repayments continued to represent a major source of funds, totaling
$218.2 million in the 1996 first quarter. This level was above the $184.7
million in the previous quarter, and $90.0 million in the 1995 first quarter.
At March 31, 1996, the Bank's ratio of regulatory liquidity was 5.20%,
compared to 5.03% at December 31, 1995, and 5.16% at March 31, 1995. The ratio
remains above the regulatory minimum of 5%.
Stockholders' equity totaled $387.5 million at March 31, 1996, compared
to $384.1 million at December 31, 1995, and $367.9 million at March 31, 1995.
REGULATORY CAPITAL
The following table is a reconciliation of the Bank's stockholder's equity
to federal regulatory capital as of March 31, 1996. The data is provided based
on regulations currently in effect (i.e. transitional basis) and on a fully
phased-in basis, where the full amount of the Bank's investment in real estate
as defined by the Office of Thrift Supervision is deducted from capital. The
transitional March 31, 1996 core and tangible capital ratios were 7.46% and the
risk-based capital ratio was 14.29%. When calculated on a fully phased-in
basis, the core and tangible capital ratios were 7.04% and the risk-based
capital ratio was 13.61%. The Bank's capital ratios exceed the "well
capitalized" standards of 5% for core and tangible and 10% for risk based, as
defined by regulation, on both a transitional and fully phased-in basis.
Aside from asset growth, the following two possible transactions may
impact the Bank's future regulatory capital ratios:
. Legislation has been introduced in Congress wherein a special one-time
assessment may be assessed to recapitalize SAIF. If enacted as proposed,
the Bank would pay a one-time premium which, on an after-tax basis, would
approximate $18 million. Based on March 31, 1996 data, such a one-time
charge to capital would reduce the Bank's fully phased-in tangible and core
capital ratios to approximately 6.6% from 7.04%, and the risk-based capital
ratio to approximately 12.9% from 13.61%.
. A joint venture relationship may be dissolved and the assets distributed
to the partners whereby DSL Service Company would become the sole owner of a
large shopping center which is funded, in part, by a $30.2 million secured
note from the Bank. In such an event, the $30.2 million secured note would
become part of the Bank's investment in DSL Service Company and would be
deducted from capital when calculating regulatory capital ratios until such
time as the secured note is repaid. Based on March 31, 1996 data, such a
deduction from capital would reduce the Bank's fully phased-in tangible and
core capital ratios to approximately 6.4% from 7.04%, and the risk-based
capital ratio to approximately 12.4% from 13.61%.
If both transactions were to occur, the Bank's fully phased-in capital
ratios would decline from 7.04% to 6.0% for the tangible and core capital
ratios, and from 13.61% to 11.7% for the risk-based capital ratio. In all
alternatives, the March 31, 1996 pro forma capital ratios remain above the
regulatory "well capitalized" standards.
21
<PAGE>
<TABLE>
<CAPTION>
Transitional
-------------------------------------------------------------
Tangible Capital Core Capital Risk-Based Capital
----------------- --------------- ------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholder's Equity $378,793 $378,793 $378,793
Adjustments:
Phased deduction:
Investment in subsidiary (60% transitional) primarily real estate (32,197) (32,197) (32,197)
Non-supervisory goodwill (5,983) (5,983) (5,983)
Core deposit premium (747) (747) (747)
Non-permitted mortgage servicing rights (73) (73) (73)
Additions:
Unrealized loss on securities available for sale 1,634 1,634 1,634
General loss allowance - Investment in DSL 2,751 2,751 2,751
Loan and lease general valuation allowances(1) - - 25,878
- - -----------------------------------------------------------------------------------------------------------------------------------
Regulatory capital 344,178 7.46% 344,178 7.46% 370,056 14.29%
Well capitalized requirement 69,197 1.50(2) 230,657 5.00 258,914 10.00(3)
- - -----------------------------------------------------------------------------------------------------------------------------------
Excess $274,981 5.96% $113,521 2.46% $111,142 4.29%
===================================================================================================================================
Fully Phased-In
-------------------------------------------------------------
Stockholder's Equity $378,793 $378,793 $378,793
Adjustments:
Phased deduction:
Investment in subsidiary primarily real estate (53,661) (53,661) (53,661)
Non-supervisory primarily goodwill (5,983) (5,983) (5,983)
Core deposit premium (747) (747) (747)
Non-permitted mortgage servicing rights (73) (73) (73)
Additions:
Unrealized loss on securities available for sale 1,634 1,634 1,634
General loss allowance - Investment in DSL 2,751 2,751 2,751
Loan and lease general valuation allowances(1) - - 25,878
- - -----------------------------------------------------------------------------------------------------------------------------------
Regulatory capital 322,714 7.04% 322,714 7.04% 348,592 13.61%
Well capitalized requirement 68,784 1.50(2) 229,281 5.00 256,155 10.00(3)
- - -----------------------------------------------------------------------------------------------------------------------------------
Excess $253,930 5.54% $ 93,433 2.04% $ 92,437 3.61%
===================================================================================================================================
</TABLE>
(1) Limited to 1.25% of risk-weighted assets.
(2) Represents the minimum requirement for tangible capital, as no "well
capitalized" requirement has been established for this category.
(3) A third requirement is Tier 1 capital to risk-weighted assets of 6%, which
the Bank meets and exceeds with a ratio of 13.29% and 12.60% on a
transitional and fully phased-in basis, respectively.
22
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(A) None.
(B) There were no reports on Form 8-K filed for the three months ended March
31, 1996.
SIGNATURES: Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DOWNEY FINANCIAL CORP.
Date: May 3, 1996
--------------------------------------
Stephen W. Prough
President and Chief Executive Officer
Date: May 3, 1996
--------------------------------------
Thomas E. Prince
Executive Vice President/
Chief Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 16,911
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 56,888
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 204,398
<INVESTMENTS-CARRYING> 7,098
<INVESTMENTS-MARKET> 7,075
<LOANS> 4,085,613
<ALLOWANCE> 27,943
<TOTAL-ASSETS> 4,652,584
<DEPOSITS> 3,890,658
<SHORT-TERM> 259,839
<LIABILITIES-OTHER> 42,240
<LONG-TERM> 72,377
0
0
<COMMON> 170
<OTHER-SE> 387,300
<TOTAL-LIABILITIES-AND-EQUITY> 4,652,584
<INTEREST-LOAN> 78,050
<INTEREST-INVEST> 4,499
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 82,549
<INTEREST-DEPOSIT> 45,490
<INTEREST-EXPENSE> 5,962
<INTEREST-INCOME-NET> 31,097
<LOAN-LOSSES> 1,171
<SECURITIES-GAINS> 4,473
<EXPENSE-OTHER> 20,962
<INCOME-PRETAX> 18,576
<INCOME-PRE-EXTRAORDINARY> 10,564
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,564
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.43
<LOANS-NON> 74,810
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,506<F1>
<ALLOWANCE-OPEN> 27,943
<CHARGE-OFFS> 1,763
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 27,396
<ALLOWANCE-DOMESTIC> 27,396
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,800
<FN>
<F1>Gross interest income that would have been recoded in the period if loans
had been current.
</FN>
</TABLE>
