Magazine article American Banker

Wells, 1st Interstate Posts Hefty Gains

Magazine article American Banker

Wells, 1st Interstate Posts Hefty Gains

Article excerpt

SAN FRANCISCO -- Buoyed by continued strong credit quality improvements, two major California banks reported sharp gains in first-quarter profits from the same period a year ago.

San Francisco-based Wells Fargo & Co. posted first-quarter net income of $202 million, up 87% from a yea age. And Los Angeles-based First Interstate Bancorp earned $184.1 million, 54.1% above operating results in the March 1993 period.

The latest result for Wells came at the high end of analysts' forecasts and represented a glittering 1.60% return on assets. This signaled a nearly complete recovery from the company's loan quality and earnings problems of the early 1990s.

Stregthening Economy

The profit gain reflected a strengthening California economy and another sharp drop in nonperforming assets for Wells. Nonperforming loans and foreclosed property fell to $1.265 billion, down 19% in the quarter and 49.6% from March 1993.

New loans placed on nonaccrual status plunged to $52 million, compared with $249 million a year ago. Wells' provision for loan losses was $60 million in the latest quarter, compared with $210 million for the same period last year.

Wells did not draw down its loan-loss reserve during the quarter, which remained at $2.12 billion. Net loan chargeoffs approximately equaled the quarterly provision.

"They are not underproviding," said Lawrence R. Vitale, an analyst with Bear, Stearns & Co. "This result is a real number."

Reduced Expenses

Well's earnings were also aided by a 3% decline in expenses from a year ago.

In addition, noninterest income rose 16% from the 1993 first quarter, reflecting higher fees on deposit accounts.

Wells' quarterly net interest income fell 5% from a year ago, reflecting lower loan balances and a narrower interest margin. But, during the March period, outstanding loans posted their first quaterly increase since 1990. …

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