First Interstate Reports Record First-Quarter Earnings

Strong performance by its California bank and one-time gains propelled First Interstate Bancorp to record first-quarter profits.

The Los Angeles banking company said Wednesday that its net income for the period was $132.2 million, 29% above the same period last year.

An accounting change and tax benefits from previous losses boosted the profits by $37.9 million in the quarter. But even without those gains, profits would have been slightly ahead of the first quarter of 1988.

Joseph J. Pinola, chairman and chief executive of the nation’s eighth-largest banking company, said he was pleased with the results and that the period reflected the company’s determination to improve profits.

One of the brightest spots was increased profits at First Interstate of California, the company’s largest bank, and at its banks in Arizona, Oregon, Washington and Nevada. Net income from those five banks was $139.7 million, 24% higher than a year earlier.

First Interstate also showed progress in cutting costs for staff and other overhead, known as non-interest expense. While non-interest expenses were up 4.3% compared to a year earlier, the entire increase was attributed to the Texas subsidiary, First Interstate of Texas, which was acquired by First Interstate Bancorp early last year.

At the other banks and subsidiaries, expenses were down 0.5% compared to the first quarter of 1988. The reduction was achieved chiefly by eliminating more than 3,000 jobs in the past 12 months.

But expenses at First Interstate of Texas jumped 72% over the last year, and the number of workers there stayed at 3,284. The Texas bank also lost $24.3 million in the quarter, compared to a loss of $2.1 million a year ago.

Pinola said that, while disappointed with the continuing losses in Texas, he still expects improvements in the state’s economy and the underlying strength of the bank there to lead to profits. He did not, however, say when he expects that to occur.

Return on assets and return on equity, measures of operating efficiency, improved in the quarter, with ROA rising to 0.95% from 0.75% a year ago and ROE rising to 23.38% from 18.48%.

As have other big California banks, First Interstate reported stronger net interest income for the quarter, based largely on widening spreads between what the bank paid for money and what it received as interest on loans. Net interest income for the quarter was $636.8 million, up 12.8% from a year earlier.

A big part of the problem in Texas is the continued deterioration of real estate loans. That contributed to a 40% increase in net loan losses over the first quarter of 1988. The company said its net loan losses for the period were $153.2 million, including $125 million in domestic loans and $28.2 million in foreign loans.