Two of the biggest West Coast bank holding companies, First Interstate Bancorp and U.S. Bancorp, posted higher earnings in the second quarter that were in line with analyst expectations.

Los Angeles-based First Interstate increased net income 5.6% to $219.9 million, benefiting, analysts said, from an unexpectedly big improvement in net interest margins.

Meanwhile, Portland, Ore.-based U.S. Bancorp increased net income 37% to $70 million. Analysts said its most notable achievement was a continued reduction in core operating expenses.

"The second-quarter results were strong in all performance categories," said First Interstate chairman and chief executive William E.B. Siart.

Carole Berger, a stock analyst with Salomon Brothers Inc., said the most surprising part of First Interstate's earnings was the improvement in its net interest margin.

First Interstate is among the most interest rate sensitive of the superregional banks, Ms. Berger said. As a result, the institution was among the biggest beneficiaries last year when interest rates rose.

Conversely, First Interstate is expected to suffer from declining interest rates. But the squeeze did not show up in the second quarter. The institution increased its net interest margin 35 basis points to 5.45%. "It was up very strong," she said.

Ms. Berger said the principal reason for the increase in the margin was that First Interstate did a good job of replacing low-interest securities with higher-interest loans.

"What was interesting is that net interest income and margins were stronger than what I had expected in my model," added Campbell K. Chaney, a stock analyst with Rodman & Renshaw Inc. in San Francisco.

Mr. Chaney said First Interstate's wholesale borrowings declined by more than $1 billion, indicating that more of its loans were funded by lower- cost deposits.

First Interstate's average loans and leases increased 28% from last year, and 0.7% from the first quarter, to $35.5 billion. Total assets increased 4%, to $56 billion.

First Interstate continued its practice of not making new provisions to its allowance for loan losses. Noninterest expenses rose 11% from last year, to $553.9 million. Return on assets nudged up slightly, to 1.58% from 1.57%, while return on common equity rose to 24.8% from 23.36%.

At U.S. Bancorp, total assets were flat, at $21 billion, as were total earning assets, at $19 billion. Total loans and leases nudged up 8% to $16 billion.

But the company's overhead ratio declined to 61.4%, from 69.85% last year, getting it markedly closer to its goal of achieving a 59% expense ratio.

This helped improve its performance ratios. U.S. Bancorp's return on average common equity increased to 15.83%, compared with 12.24% last year. Its return on average assets increased to 1.33%, from 0.98% a year ago. R. Jay Tejera, a managing director with Dain Bosworth Inc., cited that gain as the company's most remarkable achievement in the quarter.

"I look at this quarter, and I see real progress on the expense side," he said.

U.S. Bancorp's core operating expenses were $6 million lower than Mr. Tejera had expected. But he said this was offset by a $6.4 million charge for expenses related to its pending acquisition of West One Bancorp. U.S. Bancorp "appears to be front-loading as much of the merger expenses as it can," Mr. Tejera said.

But on the negative side, he said, the growth in total loans and leases at U.S. Bancorp appears to be slower than the growth at other institutions in Oregon and Washington, the company's principal operating areas. Mr. Tejera said he believes U.S. Bancorp is missing revenue growth opportunities as it focuses on cost reduction. +++ First Interstate Bank Los Angeles Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $222.6 $195.0 Per share 2.77 2.22 ROA 1.58% 1.57% ROE 24.80% 23.36% Net interest margin 5.45% 5.10% Net interest income* 647.5 585.9 Noninterest income 274.4 254.5 Noninterest expense 553.9 498.9 Loss provision NA NA Net chargeoffs 42.6 46.8 Year to Date 1995 1994 Net income $437.4 $364.4 Per share 5.47 4.25 ROA 1.55% 1.52% ROE 25.28% 22.64% Net interest margin 5.39% 5.03% Net interest income* 1,285.0 1,124.4 Noninterest income 542.8 511.0 Noninterest expense 1,105.6 991.8 Loss provision NA NA Net chargeoffs 79.8 72.4 Balance Sheet 6/30/95 6/30//94 Assets $55,952 $53,303 Deposits 48,455.0 46,856.0 Loans 35,904.0 28,746.0 Reserve/total loans 2.45% 3.38% Nonperf. loans/loans 0.50% 0.79% Nonperf. assets/assets 0.45% 0.56% Nonperf. assets/loans + OREO NA NA Leverage cap. ratio 5.70%** 6.54% Tier 1 cap. ratio 7.20%** 9.61% Tier 1+2 cap. ratio 10.20%** 12.51% === *Taxable-equivalent basis **estimated

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