Downey Financial Non-Performing Loans Jump Higher Than Predicted

Last month, I predicted that Downey Financial (DSL) non-performing assets [NPA] would be sharply higher in their next data release.

Friday Downey released another Thirteen Month Selected Financial Data report, and the jump in NPAs surprised even me.

Downey reports NPAs as a percentage of total assets. But not all of a bank's assets are loans. So, to make the NPA statistic more easily comparable, you can back out Downey's cash, investment securities, FHLB stock, and other assets that are not loans from the calculation.

The graph above shows NPAs as a percentage of only loans. It reveals that calculating NPAs as a percentage of total assets has been steadily understating the increase.

I have consistently maintained a "Sell" on Downey since March 15 when it was selling for $64.87. It is down 52% since then. Take a look at this writeup from April 2007 on Downey's underwriting quality.