California Bank Profits Dive; Two Big Thrifts Fare Better
Reflecting the strains of California's troubled commercial real estate market, Wells Fargo & Co. and Union Bank on Tuesday reported third-quarter profits sharply below levels of the same period a year ago.
Meanwhile, Security Pacific Corp. reported a $508.5 million loss after taking a $1.2 billion provision for bad loans. Analysts said the huge provision was an attempt to clean up the loan portfolios before the company's pending merger with Bank-America Corp.
But the news was better for two major California thrifts - Great Western Financial Corp. and Golden West Financial Corp. - indicating that the residential lending market remains relatively firm. The thrifts reported solid earnings gains despite a rise in bad loans.
Wall Street interpreted the mixed results as a signal that California's real estate market is bending but not buckling.
"This quarter didn't give the bears the news they wanted," said Thomas K. Brown, an analyst at Donaldson, Lufkin & Jenrette Securities Corp. "But it doesn't end the argument" on how deep the state's banking recession will go.
San Francisco-based Wells reported net income of $86 million for the quarter, or $1.59 a share, down 47% from the third quarter of 1990.
Heavy exposure to California commercial real estate has created deep anxiety about the company's prospects. Many analysts were pleased that credit quality didn't decline more then it did.
Wells' shares were up 4.6% to $70.50
The company's earnings were substantially below analysts' consensus estimate of about $120 million. But nonperforming assets rose at a rate many investors consider acceptable, up $276 million during the period to about $2.3 billion, or 4.1% of total assets.
Well's addition to loan-loss reserves for the quarter was $200 million, compared with $75 million a year ago.
Union Bank, which is 77% owned by Bank of Tokyo, reported net income of $5 million for the third quarter, down 86.3%.
The earnings drop was due mainly to a previously announced $90 million loan-loss provision for the quarter, compared with $37 million in the second quarter and $28 million a year ago.
Beverly Hills-based Great Western's earnings more than doubled, primarily due to wider margins and a big drop in the amount the company set aside for problem loans. Earnings for the quarter amounted to $77.3 million, or 57 cents a share, up 108% from the $37 million or 29 cents a share earned a year ago.
A slight rise in problem loans was more than offset by a large increase in the company's net interest margin, which stood at 3.55% at Sept. 30, compared with 2.8% a year earlier and 3.22% at June 30. Total new loans were $2.3 billion, compared with $3.4 billion a year ago.
Golden West, Oakland, which has $24.7 billion in assets, reported net income of $61 million, or $0.96 a share, up 42% from a year ago. The company said nonperforming assets amounted to 1.04% of total assets, compared with 0.92% at the end of June.
Teresa Carson in Los Angeles contributed to this report.
Table : Wells Fargo & Co. San Francisco Dollar amounts in millions (except per share)Third Quarter 3Q91 3Q90Net Income $86.0 $163.0Per share 1.59 3.03ROA 0.62% 1.26%ROE 10.62% 21.93%Net interest margin 5.22% 5.14%Net interest income 630.0 590.0Noninterest income 224.0 195.0Noninterest expense 503.0 426.0Loss provision 200.0 75.0Net chargeoffs 123.0 46.0Year to Date 1991 1990Net income $252.0 $555.0Per share 4.65 10.48ROA 0.61% 1.47%ROE 10.51% 24.40%Net interest margin 5.16% 5.09%Net interest income 1,903.0 1,722.0Noninterest income 638.0 704.0Noninterest expense 1,448.0 1,254.0Loss provision 635.0 225.0Net chargeoffs 373.0 106.0Balance Sheet 9/30/91 9/30/90Assets $55,774.0 $51,540.0Deposits 43,918.0 37,205.0Loans 46,005.0 44,434.0Reserve/nonp. loans 63.1% 107.9%Nonperf. loans/loans 3.95% 1.76%Nonperf. asset/asset 4.10% 2.35%Leverage Cap. Ratio 5.03% 5.20%Tier 1 Cap. Ratio 5.45% 5.39%Tier 1+2 Cap. Ratio 9.75% 10.29%