Tax Gain Helps Downey Savings Post $43.7-Million Profit for 1993

Strengthened by a onetime gain from an accounting change, Downey Savings & Loan said Thursday that it posted a $43.7-million profit for 1993, up 4.6% for the year.

The net income, equal to $2.70 a share, included a $15.1-million gain from a change in the way the thrift accounted for tax benefits associated with its 1988 acquisition of Butterfield Savings & Loan, a failed thrift in Santa Ana.

Thomas E. Prince, Downey’s chief financial officer, said that most of the tax gain would have been claimed during the year in any event--the accounting change merely forced the thrift to declare it all in the first quarter. The thrift reported a $12-million gain from the Butterfield acquisition. Before taxes, Downey’s 1993 net income was down 2.4% from the previous year, Prince said.

The accounting change effectively boosted Downey’s income tax rate in the fourth quarter to 41% from 15.8% a year earlier, and the tax increase combined with several operating factors to lower Downey’s fourth-quarter profit to $4.2 million--down 51% from $8.6 million a year earlier.

Robert L. Kemper, Downey’s chief executive, said the thrift’s earnings from interest declined while expenses rose, largely from the costs of operating real estate taken back in foreclosure and of collecting on problem assets.

He said that Downey’s non-performing assets--the combination of bad loans and real estate foreclosures--rose by $2.1 million for the year, to $69.6 million, which was equal to 2.01% of total assets. All of the increase occurred in the fourth quarter, “reflecting the continuing impact of the California recession,” Kemper said.

Regulators generally don’t become concerned about a thrift’s percentage of non-performing assets until it exceeds 3%. Much of Downey’s residential lending has been for refinancing, and Prince said that refinancing activity throughout Southern California declined in the fourth quarter as interest rates stabilized.

For the full year, Downey originated $956 million in single-family residential loans, down from $1 billion in 1992. The value of the thrift’s loan and mortgage-backed securities portfolio rose to $2.9 billion by the end of 1993, up 5.2% for the year.

Downey reported total deposits of $3.1 billion as of Dec. 31, down 1.3% from a year earlier.

The thrift’s net income from interest on loans and investments was $111.7 million, down $4.8 million, or 4.1%, from 1992.

Total assets were $3.5 billion at the end of the year.

Downey, headquartered in Newport Beach, has 52 offices, all in California.

Downey Savings Posts Profit

The Newport Beach-based thrift said it made a $43.7-million profit for 1993, including $4.2 million in the fourth quarter. About a third of the profit came from a onetime gain from tax credits obtained in the 1988 purchase of a failed Santa Ana thrift. Figures in thousands of dollars, except per-share data:

4th qtr. 4th qtr. 12 months 12 months 1992 1993 1992 1993 Revenue $60,878 $53,971 $274,096 $235,779 Net income 8,652 4,241 41,850 43,666 Per share 0.54 0.26 2.59 2.70

Source: Downey Savings & Loan ; Researched by JOHN O’DELL / Los Angeles Times