SAN FRANCISCO -- Major California banks and thrifts reported solid second quarter earnings gains on a day that one of the legendary figures of Golden State banking announced his retirement.
In a surprise move, Carl E. Reichardt, 63, chairman and chief executive of Wells Fargo & Co., will step down at yearend after twelve years at the helm of [he San Francisco-based bank company.
Mr. Reichardt will be succeeded in both posts by longtime associate Paul Hazen, 52, who currently serves as Wells'president and chief operating officer.
Vice chairman William F. Zuendt, 47, who has managed most retail and commercial banking operations, will become president, chief operating officer and a director of the company. Mr. Reichardt will remain on the Wells board.
Reputation Restored
Mr. Reichardt's retirement will take place at a time when his reputation as one of banking's savviest executives is fully restored, thanks to Wells' stunning recovery from credit woes that depressed profits in the early 1990s.
As if to underscore the point, Wells reported second-quarter earnings were up 38% from a year ago, aided by a slowly recovering state economy and continued improvements in credit quality.
The result equals a 1.59% return on assets, topped in Wells' recent history only by the 1.60% ROA registered in the March 1994 quarter.
And, in an item which is a signature point of Mr. Reichardt, Wells' noninterest expenses fell 1% from the 1993 second quarter.
Other Earnings Up
Wells is not the only California bank staging a dramatic rebound. Los Angeles-based First Interstate Bancorp reported profits up 53% from the 1993 second period, representing a 1.59% return on assets for the quarter.
Both Wells and First Interstate reported sharply lower levels of problem assets and reduced credit costs from a year ago.
For the second consecutive quarter, First Interstate made no provision for loan losses.
In addition, both companies registered higher loan balances compared with yearend 1993, the first gains following several years of decline.
Wells' loans rose 3% in the first half of 1994, while First Interstate's loans were up 10.6% in the same period. The latter reflected the completion of First Interstate's acquisition of San Diego Financial Corp., that city's biggest independent bank.
Although demand for credit is growing modestly in California, the state lags other regions. "A weak recovery appears to have taken hold in the California market," Mr. Reichardt said in a statement.
Fees Income Climbed
Gains at Wells and First Interstate also reflected higher fee income compared with levels of last yearls second quarter. Net interest margin was down slightly at Wells, while First Interstate benefitted both from higher earning asset totals and a slightly wider margin than a year ago.
Analysts cautioned that First Interstate's results are abnormally high due to unusual items and the suspension through next year of provisions for loan losses. The company accumulated excess reserves in the early 1990s and is allowing its allowance for loan losses to run down.
"Reported earnings are running at unsustainable levels," said Raphael Soifer, analyst with Brown Brothers Harriman & Co. He estimated First Interstate's earning power at roughly $164 million per quarter, discounting one-time items and assuming a $40 million quarterly provision.
Gains for Two Thrifts
Two giant California thrifts also posted second-quarter earnings gains thanks to improved cost control and lower loan-loss provisions.
Irwindale-based H.F. Ahmanson, the nation's largest thrift company, earned $73.5 million, reversing a year-ago loss. Second-ranked Great Western Financial Corp., Chatsworth, netted $55.9 million, up 6.3% from the 1993 second quarter.
Still, Ahmanson and Great Western recorded lackluster returns on assets of 0.58% and 0.59% respectively, reflecting lingering credit problems and the narrow spreads in the highl} competitive mortgage business.
Both thrifts reduced loan problems, mainly through bulk asset sales.
Great Western's nonperforming assets were down 42% from June 1993 and currently equal 2.88% of total assets.
Ahmanson slashed its nonperforming assets 53% during the same period to equal 1.83% o total assets at the end of June.
The two thrifts said home loan originations rose from first quarter levels but were dowr from a year ago. Both reported heavy demand for adjustable rate mortgages.
Different Story for Union
San Francisco-based Union Bank, California's fourth-largest bank, was an exception to the trend towards earnings recoverics in the state. Union, which is majority-owned by Bank of Tokyo, saw second-quarter profits plunge 51% from a year ago to $12.7 million as it continues to struggle with asset quality problems.
Union has trimmed problem assets 31% since December in large part through sales of loans and foreclosed property. Nonperforming assets at the end of June represented 3% of total assets. But credit costs and writedowns associated with bulk sales continue to depress earnings.
OutSide California, Salt Lake City-based First Security Corp. reported another strong quarter, netting $35.2 million in the period, up 18.6% from a year ago.
In addition to excellent banking conditions in the company's Rocky Mountain market area the profit gain reflected First Security's acquisition of New Mexico-based First National Financial Corp. late last year plus several smaller purchases. First Security's assets climbed to $11.7 billion at the end of June.
