$57.2-Million Net Is 7% Increase : Downey Savings Tops Prior Year’s Record Earnings

Topping its prior year’s record earnings, Downey Savings & Loan Assn. on Tuesday reported $57.2-million net income for 1986, a 7% increase over the $53.4 million the Costa Mesa institution earned in 1985. Revenues of $306.1 million in 1986 were up 3% from the previous year’s $297.4 million.

The record profits came in spite of lower fourth-quarter earnings and revenues. The S&L; had a net income of $8.4 million in the final quarter, down 17% from the $10.1 million earned in the previous year’s last quarter. Quarterly revenues fell 6% to $65.8 million from $70 million in the previous year’s final quarter.

The lower quarterly figures were a result of a slowdown in the real estate industry and a reduction in Downey’s income from interest, said A.J. Morsillo, Downey’s chief financial officer. The lower interest income was caused by a combination of the S&L; selling $550.6 million worth of mostly high-interest, fixed-rate loans that were ripe for refinancing at lower rates and adding lower-interest adjustable rate loans to its portfolio, he said.

Maurice L. McAlister, Downey’s president, said the S&L;’s record performance for the year came from three areas: a favorable margin on the difference between the interest earned on investments and that paid to depositors; gains from the sale of investments and a strong increase in loan fee income.

Downey’s total assets at the end of the year were $2.5 billion, down 4% from $2.6 billion in assets a year earlier. The drop in the S&L;’s assets was caused by Downey’s decision to pay off its borrowings with excess cash, Morsillo said.

The reduction in assets helped to boost stockholders’ equity 55.5% at the end of the year to $155.5 million from $100 million a year earlier. The increase “stands as our most significant accomplishment for 1986,” McAlister said.

The S&L;’s loan portfolio at the end of the year rose 4% to $1.75 billion from $1.68 billion a year earlier. Most borrowers took out adjustable rate loans, leaving the association at the end of the year with more than 70% of its loan portfolio consisting of adjustable rate loans and loans with a due date of five years or less. Such loans are believed to be less susceptible to producing losses if interest rates shift suddenly.

Total checking and savings deposits at the end of the year grew 16% to $2.2 billion from $1.9 billion a year earlier. Checking accounts, which the S&L; is trying to promote, accounted for 8.8% of the total deposits last year, compared to 7.2% the previous year.