First Interstate Bancorp reported Thursday that it earned $64.5 million in the second quarter, reflecting sharply lower expenses and improved credit quality. The company reported an $80 million loss in the corresponding period a year ago.

Meanwhile, Bank of Boston Corp. provided further evidence that it, too, is on the mend. The company weighed in with a $62.4 million profit, compared with a $50 million loss the year before.

And PNC Financial Corp., reported it earned $129.8 million, a 39% increase achieved through securities gains, steadily firming credit quality, and a widened net interest margin.

First Interstate's stock closed at $39.50 a share, down 12.5 cents; Bank of Boston's at $22.50, unchanged; and PNC's at $52, down 75 cents.


The Los Angeles-based company's quarterly earnings of 75 cents per share slightly exceeded the 67-cent consensus forecast of analysts surveyed by First Call, an American Banker affiliate.

Declining revenue kept the company's profits at relatively depressed levels. Both interest and noninterest income were down from the second quarter of 1991. Total loans of $25.4 billion were 16.7% below the level of the year before.

First Interstate's provision for loan losses was $87.8 million in the second quarter, down 70.2% from the year-before quarter and 20.1% from the first quarter of 1992. Nonperforming assets totaled $1.214 billion, down a sharp 18.2% from the end of the first quarter and 31.6% from the year before.

The company did not break out loan problems by state, but First Interstate's loan quality has been steadily recovering at previously troubled units in Texas and Arizona. Those improvements apparently offset any deterioration in California.

The company said it expects nonperforming assets to remain flat or decline during the rest of the year, depending on the California economy.

First Interstate's noninterest expenses fell 13.3%, to $565.7 million, mainly due to dramatically lower personnel costs. The company's full-time equivalent staff totaled 27,626, a 17.3% drop from the year before.


Driving the results were a sharply lower loan-loss provision of $25 million, down 44% from the first quarter, and higher net interest income.

However, what really caught analysts' attention was how much the company was able to reduce its nonperforming assets.

Bad assets, including renegotiated loans, fell $207 million to $1.371 billion, or 13.1%.

More importantly, outflows of bad assets after writedowns continued to exceed inflows.

With reserves now equal to 142% of problem loans, analysts said the company likely will be able to keep its loan loss provision low.

Analysts also said they were impressed with the company's increase in net interest margin. It rose to 3.95% from 3.57%. Net interest income was up 8.4%, as a result.

Lawrence Cohn, an analyst at PaineWebber Inc., said it was probably too soon to say the bank was completely recovered from its real estate loan problems. However, he said, it was moving quickly in that direction. "Certainly, in 12 months, [bad assets] will be down to what most people consider to be normal levels," he said.


Annualized, the Pittsburgh-based banking company's returns equaled 1.22% on average assets and 15.21% on average equity. That compares with a 0.87% ROA and a 13.89% ROE in the year-before quarter.

Analysts said the brightest spot in PNC's showing was its improved credit quality.

Although a loss provision of $100.2 million equaled an annualized 1.65% of average loans, up from 1.48% a year ago, chargeoffs fell to an annualized 0.96% of average loans from 1.37%. And nonperforming assets equaled 2.57% of gross loans at midyear, down from 2.81% at March 31 and 3.21% the year before.

"It's time to start giving some recognition for the way PNC is handling the credit cycle," said Anthony Davis, a banking analyst at Wheat First Butcher & Singer, Richmond, Va.

PNC's results still rely heavily on one-time gains from securities sales. The $51.4 million in second-quarter gains equaled 27.2% of pretax income. That was down from 42.3% in the first quarter but up from 17.24% in the 1991 second quarter. PNC had at least $319.3 million of unrealized gains left at midyear.

The company further widened its net interest margin, to 4.04%, from 3.95% in the first quarter and 3.7% the year before. This helped PNC weather a heavy migration of funds from loans into securities investments.

Analysts expressed pleasure at PNC's hefty equity capitalization. At midyear, the company's leverage ratio was 8.1%, compared with 6.2% at Mellon Bank Corp. and 6.6% at First Chicago Corp.

Sam Zuckerman in San Francisco, Fred Vogelstein in New York, and Steve Klinkerman in Chicago contributed to this article.

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