Wells Fargo & Co. reported Tuesday that it earned $82 million in the second quarter, nearly six times more than its depressed profits a year ago but well below expectations.

Meanwhile, three other major banking companies weighed in with solid second-quarter earnings.

Banc One Corp. disclosed a 30% improvement, boosted by inclusion of its Texas franchise.

Mellon Bank Corp. said its net income rose 29%, riding the strength of tax breaks, widened net interest margins, and stable credit quality.

And CoreStates Financial Corp. reported its net income was up 24%, reflecting lower operating costs and higher fee income.

Also reporting Tuesday was H.F. Ahmanson & Co., whose earnings rose 10%.

Wells stock fell $2.50 a share Tuesday, or 3.4%, to $70.75. Shares of Banc One fell 25 cents, to $44.25, and Mellon fell 25 cents, to $40.50.

Shares of CoreStates were unchanged at $51.125, and shares of Ahmanson rose 12.5 cents, to $16.625.


Poorer-than-expected performance by San Francisco-based Wells reflected continued erosion of credit quality in the face of California's deepening economic slump.

The company's $300 million provision for loan losses, up 39.5% from the first-quarter level, was higher than most forecasts.

Meanwhile, Wells cited higher costs of carrying foreclosed property as a main factor driving a 9% increase in noninterest expense since the 1991 second quarter.

Nonperforming loans and foreclosed property jumped 15.8% in the quarter, to $2.883 billion, suggesting that loan problems will drag down earnings for some time to come.

"This was a very disappointing report," said Thomas H. Hanley, analyst at First Boston Corp.

Loan Woes Seen Burgeoning

Mr. Hanley predicted problem loans would increase at about a 10% to 15% pace in the quarters immediately ahead. He said the second-quarter result set back Wells' effort to improve its regulatory rating and put itself in a position to make major acquisitions again.

The quarter did have some positive notes for Wells.

Net interest income rose to $671 million, a 6% increase from a year ago, thanks to a widening gap between the cost of funds and interest charged on loans.

Noninterest income soared to $271 million, up 28% from the second quarter of 1991. The company said higher service charges on deposit accounts and bigger fees for trust and investment services fueled the gain.

In addition, Wells continued to earn significant income from its nonperforming loans. An estimated 39.7% of nonaccrual loans were current on interest payments, while the nonaccrual portfolio as a whole yielded an estimated average of 6%.


The Columbus, Ohio-based company posted an annualized return on assets of 1.52%, compared with 1.69% a year ago. A 17.83% return on equity compared with 16.71% a year ago.

Prior-year consolidated results do not include Banc One's Texas franchise, whose purchase the company completed last fall.

Chairman and chief executive John B. McCoy said a hefty net interest margin and firming credit quality helped Banc One's second-quarter results.

The company's robust net interest margin of 6.53% was off from 6.82% in the first quarter but up sharply from 5.83% a year ago. Securities gains of $1.77 million played a tiny role in the second quarter, equaling only 0.65% of pretax income.

Banc One's loan-loss provision of $107.5 million was down from $160.9 million in the first quarter. Net chargeoffs declined to $96.4 million from $129.2 million in the first quarter.

At midyear, nonperforming assets comprised 1.88% of gross loans, and the company held $611.2 million of loss reserves or 98.4% of nonperforming assets.


The Pittsburgh-based banking company said that, were it not for tax-loss carryforwards, its annualized returns would have been 0.88% on average assets and 11.37% on common equity. By contrast, Mellon's reported results equaled a 1.22% ROA and 17.78% ROE.

The company said it retains $79 million of unused tax benefits.

Mellon's second-quarter net interest margin was 4.3%, up from 3.8% the year before.

The company showed a modest improvement in asset quality. Nonperforming loans at mid-year equaled 2.47% of total loans, down from 2.99% a year ago. And loss reserves equaled 129% of problem loans, up from 95%.

"It's encouraging to see a continuation of that trend," said Ted Paluszek, an analyst at Kidder, Peabody & Co., New York.

Mellon booked no gain from securities sales in the second quarter of this year or last. It booked $45 million of such gains in the 1992 first quarter.


The results exceeded analysts' expectations that the company would earn $61 million. Return on assets was 1.24% up from 1.11% in the first quarter and 0.94% the year before.

Reflecting a broader trend in the banking industry, net interest margin was up 7 basis points, to 5.71%, but net interest income rose only slightly from the first-quarter level.

Terrence A. Larsen, Core-States' chairman and chief executive, said loan demand remained sluggish.

Analysts were particularly encouraged by the drop in expenses at the Philadelphia-based company because its costs have tended to be higher than average.

"They swung for the fences and made it over," said Felice Gelman, an analyst at Dillon Read & Co. "It was a great quarter."

Nonperforming assets remained steady at about $433 million, or a relatively low 2.93% of loans and foreclosed real estate.

The company said nonperformers would have declined but for a $61 million credit put on nonperforming status during the quarter.

The provision for loan losses was down $1 million to $32 million, equal to the amount of chargeoffs during the quarter.

CoreStates, which has $21.6 billion in assets, continued to bolster its earnings with securities gains; however, at $3.2 million, they were half the amount booked in the first quarter.


The parent of Home Savings of America attributed its increase to a $67.1 million second-quarter profit, from $60.8 million in the year-ago period, to expanded net interest rate spreads and to increased loan volume.

Although nonperforming assets rose 8.1%, to $2.2 billion, from the first quarter, that growth rate was much smaller than in previous quarters.

Ahmanson, based in Irwindale, Calif., noted a leveling off of 30- to 89-day delinquencies, according to company spokeswoman Mary Trigg.

"Nonperforming assets are still high, but they've stabilized," said E. Gareth Plank, financial analyst at Dean Witter Reynolds Inc., San Francisco. He added that Ahmanson "and other adjustable-rate mortgage lenders will see a 15- to 20-basis-point decline" in rate spreads over the next six months.Earnings at a Glance 2Q '92 Change net income from (millions) 2Q '91Banc One $181 30%Mellon $90 29%Wells Fargo $82 486%H.F. Ahmanson $67 10%CoreStates $65 24%Source: Company reportsBanc One Corp.Columbus, OhioDollar amounts in millions (except per share)Second Quarter 2Q92 2Q91Net income $181.3 $139.2Per share 0.87 0.70ROA 1.52% 1.69%ROE 17.83% 16.71%Net interest margin 6.53% 5.83%Net interest income 700.1 426.6Noninterest income 248.8 214.4Noninterest expense 551.7 348.9Loss provision 107.5 89.2Net chargeoffs 96.4 66.1Year to Date 1992 1991Net income $360.1 $268.8Per share 1.73 1.37ROA 1.51% 1.66%ROE 17.96% 16.56%Net interest margin 6.67% 6.00%Net interest income 1,427.5 865.3Noninterest income 494.0 401.2Noninterest expense 1,078.7 682.8Loss provision 268.4 188.1Net chargeoffs 225.6 147.2Balance Sheet 6/30/92 6/30/91Assets $48,420.2 $33,809.6Deposits 38,080.4 24,709.1Loans 32,807.2 23,274.8Reserve/nonp. loans 145.2% 102.39Nonperf loans/loans 1.28% 1.63%Nonperf. asset/asset 1.28% 1.52%Leverage cap. ratio NA NATier 1 cap. ratio NA NATier 1+2 cap. ratio NA NAWells Fargo & Co.San FranciscoDollar amounts in million (except per share)Second Quarter 2Q92 2Q91Net income $82.0 $14.0Per share 1.33 0.21ROA 0.63% 0.11%ROE 9.55% 1.41%Net interest margin 5.69% 5.21%Net interest income 671.0 636.0Noninterest income 271.0 211.0Noninterest expense 506.0 463.0Loss provision 300.0 350.0Net chargeoffs 184.0 183.0Year to Date 1992 1991Net income $201.0 $166.0Per share 3.42 3.07ROA 0.77% 0.61%ROE 12.44% 10.45%Net interest margin 5.70% 5.13%Net interest income 1,351.0 1,267.0Noninterest income 516.0 414.0Noninterest expense 1,000.0 944.0Loss provision 515.0 435.0Net chargeoffs 334.0 250.0Balance Sheet 6/30/92 6/30/91Assets $52,111.0 $53,547.0Deposits 42,210.0 43,719.0Loans 40,195.0 44,099.0Reserve/nonp. loans 79.00% 71.00%Nonperf. loans/loans 4.60% 2.30%Nonperf. asset/asset 5.60% 3.60%Leverage cap. ratio 5.86% 5.02%Tier 1 cap. ratio 7.00% 5.41%Tier 1+2 cap. ratio 12.05% 9.80%Mellon Bank Corp.PittsburghDollar amounts in millions (except per share)Second Quarter 2Q92 2Q91Net income $90.0 $70.0Per share 1.41 1.20ROA 1.22% 0.95%ROE 17.78% 16.47%Net interest margin 4.37% 3.80%Net interest income 285.0 245.0Noninterest income 206.0 193.0Noninterest expense 333.0 304.0Loss provision 50.0 50.0Net chargeoffs 66.0 56.0Year to Date 1991 1991Net income $176.0 $138.0Per share 2.77 2.45ROA 1.17% 0.95%ROE 17.70% 16.98%Net interest margin 4.30% 3.82%Net interest income 567.0 488.0Noninterest income 451.0 382.0Noninterest expense 700.0 608.0Loss provision 110.0 95.0Net chargeoffs 133.0 104.0Balance Sheet 6/30/91 6/30/91Assets $29,245.0 $28,665.0Deposits 22,062.0 21,618.0Loans 18,033.0 18,563.0Reserve/nonp. loans 129.0% 95.0%Nonperf. loans/loans 2.47% 2.99%Nonperf. asset/asset 2.82% 3.16%Leverage cap. ratio 6.20% 4.73%Tier 1 cap. ratio 7.10% 5.11%Tier 1+2 cap. ratio 11.20% 9.31%CoreStates Financial Corp.PhiladelphiaDollar amounts in millions (except per share)Second Quarter 2Q92 2Q91Net income $65.2 $52.6Per share 1.18 0.97ROA 1.24% 0.94%ROE 16.45% 14.79%Net interest margin 5.71% 5.48%Net interest income 259.1 269.5Noninterest income 126.7 111.3Noninterest expense 250.5 252.1Loss provision 32.0 48.0Net chargeoffs 32.1 60.4Year to Date 1992 1991Net income $123.4 $103.8Per share 2.24 1.91ROA 1.18% 0.93%ROE 15.75% 14.86%Net interest margin 5.68% 5.48%Net interest income 517.6 538.5Noninterest income 250.3 217.7Noninterest expense 506.5 495.9Loss provision 65.0 98.0Net chargeoffs 64.7 121.0Balance Sheet 6/30/91 6/30/91Assets $21,588.0 $22,483.0Deposits 15,938.0 16,036.0Loans 14,720.0 16,356.0Reserve/nonp. loans 88.31% 84.73%Nonperf. loans/loans 2.93% 3.06%Nonperf asset/asset 2.01% 2.24%Leverage cap. ratio 7.40% 6.09%Tier 1 cap. ratio 8.47% 6.83%Tier 1+2 cap. ratio 12.59% 11.46%

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