Newport Beach-based savings and loan operator Downey Financial Corp. reported a big second-quarter loss on Thursday as its mortgage struggles prompted more executive changes and the hiring of an investment bank to explore its options.
The company lost $218.9 million in the second quarter, versus a profit of $32.7 million a year earlier.
Analysts were expecting a loss of about $128 million.
Net interest income, the equivalent of revenue for Downey, fell 26% from a year earlier to $82.9 million.
The results paint a picture of worsening conditions at Downey, which boomed a couple of years ago making adjustable rate mortgages that allowed borrowers to pay credit card-style minimum payments.
During the second quarter, Downey’s provision for bad loans rose to $258.9 million, up from $9.5 million a year earlier.
Non-performing assets, or loans where borrowers aren’t making payments, rose to 15.5% of Downey’s assets of $12.6 billion, up from 8% at the start of 2008 and 1.5% a year earlier.
It was a double whammy for Downey as bad loans rose and its assets shrunk 15% from a year earlier.
The thrift, which some observers have pegged as the next possible mortgage causality, said it has formed a special board committee to explore its options. That presumably includes a potential sale.
Downey said it hired Sandler O’Neill Partners LP as its financial adviser.
The company also announced board and executive changes.
Chairman Maurice L. McAlister, who cofounded the company and owns 20% of its stock, stepped down.
Independent director Michael D. Bozarth becomes chairman. Director Gary W. Brummett becomes vice chairman.
The move is epic in the world of Downey. McAlister retired in 1973 but has held sway over the company for decades.
The company also said chief executive Daniel Rosenthal retired and appointed Chief Operating Officer Thomas Prince as interim chief executive.
Downey said it plans to search for a permanent chief executive.
The executive shift is the latest in a series for Downey.
In June, Downey said former president and potential chief executive Frederic McGill left after eight months with the company.
McGill was Downey’s third president in less than four years.
The chief executive post has seen at least nine different faces in the past 18 years.
In 2004 former chief executive Marangal “Marito” Domingo left after a seven-month stay.
He was replaced by Rosenthal, the former son-in-law of McAlister.
Downey’s shares are down some 95% in the past year with a recent market value of $60 million.
The shares were down 20% in midday New York trading.
