New accounting rules boost results at S&Ls; first-quarter report cards improved by tax benefit.

Although they reported higher first-quarter profits, a number of local savings and loan holding companies' earnings per share actually would have been lower had they not been hyped by a one-shot benefit from an accounting change.

Promulgated by the Financial Accounting Standards Board, which sets the rules for Certified Public Accountants and their auditing clients, FASB Statement No. 109, better known as FAS 109, changed "accounting for income taxes." While CPAs still are arguing about the arcane FAS 109, they generally agree its chief effect is to allow a tax "benefit" for cumulative book loss reserves in excess of tax reserves.

(U.S. corporations keep two sets of books: one for reporting to shareholders, the other for tax purposes. Sometimes the two coincide; other times the two diverge.)

Prior to FAS 109, local CPAs said, S&Ls had to abide by Accounting Principles Board Opinions 11 and 23 dealing with loan reserves and so could not get a tax benefit from loan reserves until the losses actually were realized. FAS 109 now allows S&Ls to record for book purposes the tax benefit from loan loss reserves, explained Patrick D. (Pat) Kinsella, Los Angeles financial services partner at KPMG Peat Marwick, a Big Six accounting firm.

This change allows companies to record tax benefits for cumulative book loss reserves in excess of tax reserves that previously had not been recognized. However, if income tax rates subsequently rise, companies would have to reverse their FAS 109 benefits, chimed in Robert H. (Bob) Thibault, regional director of accounting and auditing at Ernst & Young, a Big Six accounting firm.

Among L.A.-area companies that, in the latter part of April, reported benefiting from FAS 109:

* H.F. Ahmanson & Co., the Irwindale parent of Home Savings of America, said the cumulative effect of this accounting change amounted to a reduction of financial statement tax liability of $47.68 million. That one-time benefit hiked first-quarter net earnings to $70.67 million (or 57 cents a share) from $22.99 million compared with the $55.82 million (or 48 cents a share) netted for last year's first quarter.

* Coast Savings Financial Inc., the Los Angeles parent of Coast Federal Bank, said FAS 109 added $10.91 million or 66 cents a share to first-quarter net earnings. That raised them to $13.84 million or 84 cents a share from the $2.93 million or 18 cents a share prior to the benefit and compared with $2.89 million or 19 cents a share for 1991's first quarter.

* Great Western Financial Corp., the Beverly Hills parent of Great Western Savings, said FAS 109 required the company to record previously unrecognized tax benefits totaling $61 million in the first quarter. However, the beneficial effect of FAS 109 was offset partially by the negative effect of another FASB pronouncement, FAS 106, which reduced first-quarter earnings by $29.91 million. The combined effect of the two FASB requirements was to increase first-quarter earnings by $31.09 million (23 cents a share) to $81.59 million (60 cents a share) from $50.49 million (37 cents a share).

Great Western's pre-FAS 106-109 earnings obviously were significantly below 1991's first-quarter net earnings of $69.17 million (54 cents a share).

FAS 106 requires companies to establish two types of reserves for post-retirement benefits (primarily medical benefits but excluding pension benefits) promised current and former employees.

* One reserve type is to "catch up" for non-reserved liabilities incurred in prior years. The catch-up reserve can be established with one giant hit against earnings in a single year or spread over two decades.

* The other type is to set aside annually an ongoing reserve for employees working that year for whom such benefits are promised.

FAS 106 allows each company to decide when it will start -- last year, this year or next year. Great Western apparently decided to start with this year's first quarter and to "pair" the FAS 106 hit with the FAS 109 benefit.

Peter Treadway, an S&L analyst at Smith Barney, Harris Upham & Co., a New York-based securities brokerage, said neither Ahmanson nor Coast Savings has much liability under FAS 106, unlike Great Western.

Likely to be hit hardest by FAS 106, according to a report by Goldman Sachs, another big Wall Street house, are unionized, labor-intensive companies having low employee turnover and a high ratio of retirees to current workers. Among the prime examples of such companies, the report indicated, are those in aerospace and defense.

Century City-based Northrop Corp., for example, opted to swallow its entire catch-up amount of $87.7 million last year. By pairing that huge hit with a tax credit of $90 million ($1.91 a share) for aircraft research and development, though, the aerospace giant still was able to report a 1991 profit of $200.8 million ($4.26 a share).