Wells Fargo’s Profit Increases 54% for Quarter : Joins Growing Number of Major Banks on Mend

Wells Fargo reported sharply higher earnings for the first quarter of the year on Tuesday, joining a growing list of the nation’s big banks that are emerging from last year’s financial difficulties related to foreign loans.

San Francisco-based Wells Fargo said its profits for the quarter totaled $120.4 million, an increase of 54% over the first quarter of 1987. The bank said the improved results stemmed from increased revenue, an improved loan picture and reduced operating expenses.

Reduced provisions for loan losses, improved operating earnings and staff reductions instituted last year are expected to help most of the nation’s big banks rebound from their poor showings in 1987.

Among those on the mend is Citicorp, the nation’s largest banking company and parent of Citibank in New York. Citicorp said its profit jumped 34% to $358 million in the first quarter. The gain reflected higher revenues from investment banking and traditional lending.

Operating expenses at Citicorp were up 13%, less than half of last year’s 28% increase for the same quarter, and the company’s three core businesses--consumer, institutional and investment banking--registered year-to-year earnings gains, the banking company said.

Gains by California First

Bankers Trust of New York, the nation’s eighth-largest banking company, said its earnings rose 1% to $126 million over the year-earlier period. The company said lower provisions for loan losses and improved interest income were mostly offset by an increase in operating expenses and lower non-interest income.

Mellon Bank in Pittsburgh, the nation’s 16th-largest bank, posted a first-quarter profit of $25 million, compared to a $60-million loss in the first quarter of 1987. The bank said the turnaround reflected a decline in the level of funds set aside against potential loan losses and gains from two one-time sales of assets.

In California, the state’s sixth-largest bank, California First in San Francisco, reported earnings of $10.7 million for the quarter, an increase of 25.6% over the year-earlier quarter. The company said the improvement reflected increased revenue from several sectors and a reduced rate of growth in its operating expenses.

California First, which is 77% owned by Bank of Tokyo, has signed an agreement to buy Union Bank in Los Angeles, the state’s fifth-largest bank, and expects the deal to close later this year.

Wells Fargo, the nation’s 11th-largest banking company, reported that the first quarter of 1988 was another period of strong results in a number of categories. The earnings reflected the view of most banking analysts that Wells Fargo has emerged as one of the nation’s strongest banks.

One area of improvement was the net interest margin, which represents the difference between what Wells pays for deposits and what it takes in as interest on loans. The margin rose to a strong 4.76% compared to 4.61% a year ago. The improvement helped boost net income from loans to $478.6 million, up $28.2 million from the first quarter of last year, the company said.

Cutting Costs

The interest margin is expected to be strong at most California banks this year, reflecting the relatively low interest paid by the state’s institutions compared to elsewhere in the country. For instance, interest rates on money market deposits are among the nation’s lowest.

At the same time, Wells Fargo has been drastically cutting costs since its merger more than a year ago with Crocker National Bank. In the first quarter, the company said, operating expenses, which cover staff and all other overhead, were $371.6 million, down from $380.3 million in the same quarter of 1987.

Writeoffs for loan losses also improved in the quarter, dropping to a net of $55.3 million from $79.7 million a year earlier and reflecting better quality in the loan portfolio, the company said.

The only blemish on the quarterly report was a slight increase in non-performing domestic loans, generally those 60 days past due, during the three months that ended March 31. The first-quarter total was $912.4 million, or 2.6% of total domestic loans, compared to $877.7 million, or 2.5%, at the end of 1987. But the figure was an improvement over the year-earlier quarter, when the total was $973 million, or 2.9% of the total.

Wells Fargo reported strong figures for two key measures of a bank’s profitability, return on assets and return on equity. Wells Fargo said its ROA was 1.1% for the quarter, up from 0.72% a year ago. Its ROE, adjusted for special additions to loan-loss reserves in 1987, was 20.58% for the quarter compared to 15.05% a year earlier.