Downey Savings Achieves a Record Second Quarter

Declining interest rates and a corresponding borrowing boom have contributed to record second-quarter earnings for Costa Mesa-based Downey Savings and Loan Assn.

The strong performance also has prompted a surge in the company’s stock, which has more than tripled in price since the beginning of the year.

Posting the best three-month period in its history, Downey said Tuesday that net income for the second quarter of 1985 was $19.4 million, a dramatic rise from the net of $720,000 for the same period in 1984.

For the first six months of 1985, net income totaled $30.5 million, compared with $2.2 million for first six months of last year.

M.L. McAlister, Downey’s president, predicted “strong earnings” through the next 18 months, if interest rates remain at or near current levels.

McAlister said Downey’s performance is due largely to a reduction in the thrift’s operating expenses, including the interest it pays on savings deposits, to profits from the sale of $14 million in loans and securities and to profits from its real estate division, which has investments in shopping centers in California and Arizona.

Unlike many other healthy savings and loans, which have seen their stock price fall even as their second-quarter profits rose, Downey’s stock has climbed significantly in recent months.

The company’s stock, apparently fueled by its improved earnings, reached a recent high of $28.38 from $9.38 at the beginning of the year. The stock closed Tuesday at $24.50 a share, down $1.50, in moderately heavy trading on the American and Pacific stock exchanges.

One analyst said that since Downey’s high earnings have been brought to the public’s attention, investors have realized that its stock was undervalued. He said the recent dip in Downey’s stock price is because “there is tremendous pressure to sell and take a profit.”

“It seems to me what the public is deciding is that they don’t have to invest in the largest companies of the world,” McAlister said in telephone interview Tuesday. “They are looking for companies that are profitable with good management.”

During the latest quarter, the S&L; made $94.3 million in loans, up from $81 million booked in the like period last year. Savings deposits increased $43.4 million during the quarter compared to a gain of $42.1 million for the like period of 1984.

Downey Savings, with assets of $2.28 billion, opened its first office in 1957 and has grown to 44 offices around the state.