Downey S&L; Posts 3.6% Rise in Profits in 2nd Quarter : Finances: The Newport Beach thrift reports $11.4 million in earnings despite a 20% drop in revenue.

Enjoying a bigger profit margin as interest rates fell, Downey Savings & Loan reported on Thursday that its second-quarter profit rose 3.6% even though revenue fell 20%.

The Newport Beach thrift earned $11.4 million, or 70 cents a share, for the quarter, compared to $11 million, or 68 cents a share, for the same period last year. Quarterly revenue fell to $72.6 million from $90.2 million.

For the first six months, both profit and revenue were down. Downey earned $22.7 million, or $1.40 a share, a 3.4% drop from $23.5 million, or $1.45 a share, for the first half of 1991. Revenue fell 22% to $145.9 million from $186 million.

Downey earned more for the latest quarter despite lower revenue, higher general expenses and more bad loans. The increased expenses were attributed mainly to a stepped-up advertising campaign. Two commercial loans that went sour were primarily responsible for the S&L;’s adding $3.8 million to its reserve for possible loan losses.

The thrift overcame its higher costs with a bigger profit margin and with gains in non-thrift activities, including a $2.5-million gain on the sale of real estate it owned.

Downey’s real estate holdings, which have been the envy of the market, consist mainly of fully leased neighborhood shopping centers, most of them anchored by major grocery stores. Federal law now requires all thrifts, however, to reduce such direct investments to 2% of assets by the end of 1994.

The thrift’s ratio of bad loans to assets, once ranked among the lowest in the industry, grew to 1.5% by the end of June. However, that is still short of the 3% level that prompts regulatory action.

The S&L; also continued to reduce its size overall, cutting its assets 8% to $3.5 billion at the end of June from $3.8 billion a year earlier.

The reduction in size has helped Downey to improve its ratio of capital to assets, making it one of the stronger-capitalized thrifts in the state. At the end of June, its level of capital as a percentage of assets was well above the minimum amounts required by regulators.