Downey Savings CEO Prough Quits Suddenly

Stephen W. Prough, who laid the foundation to transform Downey Savings & Loan from a traditional home-lending thrift to a more diverse banking institution, said Friday he’s stepping down to pursue other opportunities.

The thrift named veteran banker James W. Lokey, 49, who spent 23 years at First Interstate Bank, to succeed Prough as president and chief executive of Downey and its parent company, Downey Financial Corp.

The unexpected change in leadership caught industry analysts off guard and raised speculation that Downey, with $5.2 billion in loans and other assets, might once again be preparing itself to be sold.

“It’s a surprise to me,” said Campbell K. Chaney, an analyst in the Walnut Creek office of New York’s Sandler, O’Neill & Partners. “Steve’s been doing a terrific job. I don’t understand the timing on this.”

Prough, 52, said in an interview that he simply had done what he set out to accomplish when he was named to take over a sluggish Downey Savings in mid-1994. “I like to build, grow and change things, and I think my job is done,” he said. He would not elaborate on his future plans.

When Prough took over, Downey was adrift with a caretaker president, no clear successor or vision and lackluster earnings, Chaney said. Directors considered selling the institution but decided instead to remain independent.

Prough revitalized Downey’s residential lending, the traditional thrift business. At the same time, he started an auto finance operation and expanded retail banking to include debit cards, home banking, 24-hour telephone access and Internet access.

Downey also added more branches, mainly through an alliance with Hughes Family Markets. By the end of the year, Downey will have more than 100 branches throughout California, about half in Hughes markets.

More importantly to investors, earnings increased 64% and assets grew 44%, while at the same time overhead and the amount of bad loans were reduced.

“It looks like 1997 is going to be a great year, and the bar has been raised pretty high,” Chaney said. “He’s built a pretty high mountain, and it’ll be difficult to continue to make the same kind of great strides.”