SAN FRANCISCO - BankAmerica Corp. boosted second-quarter earnings in excess of Wall Street expectations, but a senior executive warned of signs of worsening credit quality in the months to come.

The country's second-largest bank holding company, based here, reported net income of $645 million on Wednesday, a 23% increase over the year- earlier period.

Meanwhile, Chatsworth, Calif.-based Great Western Financial Corp., the country's second-largest thrift company, reported a 10% drop in net income from last year to $50.4 million.

Washington Mutual Inc., the Seattle-based thrift, reported a 7% increase in net income to $45.2 million, and San Francisco-based Sumitomo Bank of California, as expected, reported a loss of $144.7 million.

On the surface, BankAmerica's earnings report showed a remarkably robust business. Total revenues increased 15%, while expenses rose 13%, primarily because of BankAmerica's September purchase of Continental Bank Corp. in Chicago.

Return on average stockholder's equity rose 88 basis points to 13.29%, while return on average total assets rose 5 basis points to 1.13%. Average loans rose 3.4% from the previous quarter to $145.9 billion, while total assets increased 1%, to $227 billion.

BankAmerica vice chairman and chief financial officer Lewis W. Coleman said that excluding the Continental acquisition, such double digit increases in revenues and expenses are "clearly unsustainable."

He added that a downturn in BankAmerica's lending business appears to be on the horizon, as well as some pressure on the liability side of its balance sheet.

Mr. Coleman explained that BankAmerica and the rest of the industry has "probably seen the best of credit quality" and that he expects loan losses "to grow modestly over the next few quarters."

BankAmerica's total deposits increased 2.6% from the end of the first quarter to $153.8 billion. But all of the increase came in foreign deposits. Domestic deposits dipped 1.7% to $118.7 billion.

Mr. Coleman said that BankAmerica has lost money from some of its transaction accounts, in particular money market deposit accounts, because they are not paying interest rates as high as the competition. While the rate of deposit loss was higher in the first quarter, Mr. Coleman said the departure of funds appears to be part of a broad, industrywide movement of deposits from banks to nonbanks.

With the weakness in domestic deposits, the Continental acquisition, and loan growth, Mr. Coleman explained that BankAmerica has been transformed from an institution flush with excess deposits to an institution that is "fully loaned."

This means that BankAmerica has to get new cash, either from wholesale borrowings or by paying higher rates to depositors, to fund its new loans,

For now, the institution will use wholesale borrowings, Mr. Coleman said. But he acknowledged that BankAmerica also has to be concerned about losing valuable retail customer relationships, since checking accounts are a key service that can be leveraged to sell other services.

Much of the earnings drop at $44.5 billion-asset Great Western was due to a decline in its interest spread, which was 2.83% in the second quarter, compared to 2.90% in the first quarter and 3.71% in the second quarter of last year.

The company attributed the decline in net interest margin to an increase in the cost of short-term borrowings, primarily 30-day reverse repurchase agreements used to fund mortgage lending.

Great Western added that the spread should improve because of the recent interest rate cut by the Federal Reserve. But Thomas O'Donnell, a savings and loan analyst with Smith Barney Inc., said an increase in interest paid for consumer deposits was primarily responsible for the decline in net interest margins.

While the big California thrifts reporting thus far all have posted declines, Mr. O'Donnell noted, the $20.3 billion-asset Washington Mutual was in the black - because the economy in the Northwest has been doing better.

The loss at $4.9 billion-asset Sumitomo Bank was due to a previously announced sale of underperforming and nonperforming assets. +++ BankAmerica Corp. San Francisco Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $645.0 $525.0 Per share 1.55 1.32 ROA 1.13% 1.08% ROE 13.29% 12.41% Net interest margin 4.54% 4.49% Net interest income 2,130.0 1,837.0 Noninterest income 1,138.0 1,015.0 Noninterest expense 2,053.0 1,818.0 Loss provision 100.0 125.0 Net chargeoffs 130.0 154.0 Year to Date 1995 1994 Net income $1,256.0 $1,038.0 Per share 3.00 2.58 ROA 1.13% 1.07% ROE 13.12% 12.33% Net interest margin 4.54% 4.47% Net interest income 4,182.0 3,637.0 Noninterest income 2,231.0 2,015.0 Noninterest expense 4,042.0 3,599.0 Loss provision 200.0 250.0 Net chargeoffs 207.0 328.0 Balance Sheet 6/30/95 6/30/94 Assets $226,599.0 $197,543.0 Deposits 155,780.0 142,035.0 Loans 148,766.0 124,874.0 Reserve/nonp. loans 179.28% 145.03% Nonperf. loans/loans 1.39% 1.89% Nonperf. assets/assets 1.12% 1.43% Nonperf. assets/loans + OREO NA NA Leverage cap. ratio 6.68%* 6.50% Tier 1 cap. ratio 7.20%* 7.50% Tier 1+2 cap. ratio 11.40%* 12.05% *estimated ===

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