Wells Up, Ahmanson Off; Lower Provisions Help Both

SAN FRANCISCO - Sharp reductions in expenses related to problem loans boosted earnings at leading California institutions that reported results Tuesday.

Wells Fargo & Co., based here, and H.F. Ahmanson & Co., Irwindale, benefited by sharply reducing the amount of money set aside to cover bad loans.

Profits at Union Bank rose because of gains on real estate owned from loan foreclosures, and from recoveries of loans that had already been written off.

Separately, First Security Corp., Salt Lake City, and Washington Mutual Inc., Seattle, reported single-digit percentage gains in earnings.

Analysts said the most unusual of the earnings reports' was Wells Fargo's. The $52.3 billion-asset banking company booked a 15% rise in net income from the year earlier period, to $233 million.

The banking company attributed the gain to its handling of loan-loss reserves. Wells Fargo took the unusual step - a first in the institution's recent history - of not making any new provisions to cover loan losses.

In the first quarter of last year, it made a $60 million provision to loan-loss reserves.

Carole S. Berger, a managing director and bank stock analyst with Salomon Brothers Inc., New York, said the move makes Wells Fargo one of only two major banking companies that aren't making new loan-loss provisions.

The other company is First Interstate Bancorp, Los Angeles, which hasn't been adding to its loan-loss reserves since last year, she explained.

Ms. Berger said she applauded the moves. She said both banking companies, like many other institutions, have excessively large allowances for loan losses. These institutions should let the allowances decline in order to boost profits, she argued.

"I really believe it belongs to the shareholders," she said.

Officials at First Interstate and Wells Fargo said they expect to continue suspending loan-loss provisions through the rest of this year. On Monday, First Interstate chief executive William E.B. said he expected that such a move would boost First Interstate's pretax profits for 1995 by about $170 million.

Balancing out the suspension of the loan-loss provision, Wells Fargo recorded an $83 million write down on $4 billion of mortgages that were reclassified as held for sale. The move was related to Wells Fargo's previously announced decision to greatly scale back its mortgage operations.

H.F. Ahmanson, parent of the country's largest thrift, Home Savings of America, reported an 8.5% drop in first-quarter earnings to $50.7 million. But the decline would have been much steeper if Ahmanson had not slashed its provision for loan losses by nearly two-thirds, to $26.5 million.

Ahmanson's net interest income fell 16% to $295.2 million, as net interest margins declined to 2.27% from 2.96% last year. Loan originations fell by a quarter, to $1.7 billion.

Union Bank, with $17 billion in assets, reported a more than fivefold increase in net income, to $44.3 million. The primary reason for the gain was that Union Bank made $729,000 of profits on other real estate owned, and recovered $1.4 million more on previously written-off loans than it allocated to new writeoffs. In the first quarter of last year, it lost $70 million in these areas.

First Security, with $12.2 billion of assets, reported a 7.4% gain in net income, to $35.6 million. Noninterest revenues rose to 36.8% of revenues, from 27% of revenues last year, due to the purchase of residential mortgage lender and servicer Crossland Mortgage Corp.

Washington Mutual's earnings rose 3%, to $41.7 million, due to growth in assets, deposits, and an expansion into Utah. +++ Wells Fargo & Co. San Francisco, Calif. Dollar amounts in millions (except per share) First Quarter 1Q95 1Q94 Net income $233.0 $202.0 Per share $4.41 $3.41 ROA 1.80% 1.60% ROE 26.89% 21.09% Net interest margin 5.59% 5.56% Net interest income $665.0 $642.0 Noninterest income $242.0 $300.0 Noninterest expense $537.0 $523.0 Loss provision 0.0 60.0 Net chargeoffs $65.0 $61.0 Balance Sheet 1/95 12/94 Assets $52,324.0 $52,176.0 Deposits 38,997.0 41,604.0 Loans 32,737.0 33,452.0 Reserve/nonp. loans 347.2% 100.6% Nonperf. loans/loans 1.80% 2.70% Nonperf. assets/assets 1.70% 2.40% Nonperf. assets/loans

+ OREO 2.60% 3.70% Leverage cap. ratio 6.60% 7.30% Tier 1 cap. ratio 8.80% 10.20% Tier 1+2 cap. ratio 12.80% 14.80% ===

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