SAN FRANCISCO -- In one of the strongest signals yet of California's banking recovery, Wells Fargo & Co. reported third-quarter net income of $217 million, up 31.5% from the same period a year ago. Earnings at San Francisco-based Wells, equal to $3.86 per share, were at the high end of analysts' expectations.
Meanwhile, Union Bank, the Golden State's fourth-largest bank, also saw its profits surge. Union, which is majority owned by Bank of Tokyo, reported earnings of $25.6 million for the quarter, up 18.7% from the comparable period of 1993.
Elsewhere in the West, banks reported mixed results. Salt Lake City-based First Security Corp. netted a record $36.8 million largely because of acquisition-based growth.
But U.S. Bancorp saw profits dip 4.7% to $62 million. The Portland, Ore.-based company is restructuring to improve operating efficiency.
Wells Fargo's earnings translated into a stellar 1.65% return on assets and 22.99% return on equity.
As in preceding quarters, Wells' profit gains reflected lower credit costs and sharp improvements in loan quality. Nonperforming loans and foreclosed. property fell to $959 million, less than half the company's problem assets at September 1993 and the first time since 1989 that the total has dropped below $1 billion.
But like downstate rival First Interstate Bancorp, which reported its results on Monday, Wells added loan growth and revenue gains to the mix, a sign of rebounding demand for credit in a state whose recovery, has finally begun.
"California's economy is stronger than people give it credit for," said PaineWebber analyst Lawrence W. Cohn.
Wells' total loans were up 4% from the September 1993 level, with gains in both the commercial and consumer categories. That helped offset a narrower margin and kept net interest income flat. At the same time, fees and other noninterest income rose 16%.
Union's results were helped by the bank's bulk asset sales and other efforts to trim credit problems. Nonperforming loans and foreclosed property dropped 64.6% from the year-ago level, totaling just 1.72% of total assets at the end of September.
But Union's earnings amounted to a sluggish 0.63% return on assets, partly reflecting its higher cost structure compared with peers.
Although U.S. Bancorp's net was down, its earnings rose on an operating basis. The Northwest's largest bank company improved in several fundamental areas, with loans up 10.5% from September 1993, margins stable, and credit quality improved.
Nevertheless, the company's costs remained high, with noninterest expenses equaling 67% of revenue during the quarter. U.S. Bancorp's reorganization, including widespread staff cutbacks, is aimed at reducing that ratio to 59% by 1996. A spokeswoman said the company expects to meet its target of 63% for the current quarter.
First Security's higher net was due mainly to 24.4% growth in average earning assets, a result of a series of acquisitions completed during the year. The company's 1.26% return on assets for the quarter was actually down from 1.39% recorded a year ago. The company warned that lower mortgage banking income may reduce earnings gains in the future.
Meanwhile, H.F. Ahmanson & Co. and Great Western Financial Corp., the nation's two largest thrift companies, posted third-quarter results that reflected a weakening of the mortgage business.
Irwindale, Calif.-based Ahmanson earned $68.5 million, down 2.1% from the 1993 third quarter. The dip was due to lower net interest income caused by a narrower margin and fewer loan originations.
Chatsworth, Calif.-based Great Western earned $57.2 million, reversing a loss a year ago. But the thrift also recorded lower net interest income because of margin compression and a slowdown in originations.
Both Ahmanson and Great Western said credit quality improved during the quarter and that demand for adjustable-rate mortgages was strong.
[Tabular Data Omitted]