Security Pacific on Thursday reported solid gains in the third quarter, as earnings reached a record $167.9 million and efforts to control costs showed progress.
The Los Angeles-based banking company said its net income was 30% higher than the same period a year ago and up slightly from the second quarter of this year, which had been the most profitable quarter in the company’s history.
Security Pacific, the nation’s sixth-largest banking company, benefited from an increase in net interest income, boosted by a 16% increase in higher-yielding consumer loans, and from a one-time gain of $32 million from the sale of some Hong Kong banking operations.
Industry analysts generally feel that Security Pacific must get control over expenses for staff and overhead in order to improve the value of its shares in the market. The bank set a target of holding such growth to 5% this year. In line with the goal, the company has closed 63 branches of its largest unit, Security Pacific National Bank.
These non-interest expenses for the third quarter were $738.8 million, an increase of only 2% over the same period last year and unchanged from the second quarter of 1988. For the first nine months of the year, the growth rate has been 5%.
“Our expense control programs are increasing our profitability and strengthening the corporation across the board,” said Richard J. Flamson III, chairman and chief executive.
Security Pacific has not recorded single-digit growth in expenses in any year since 1972, according to J. Richard Fredericks, an analyst at Montgomery Securities in San Francisco.
Despite a decline in troubled loans, the company set aside $147.3 million for potential loan losses in the quarter--nearly double the amount set aside in the last quarter.
John F. Kooken, the chief financial officer, said Security Pacific wanted to strengthen its reserve and the move was not in response to any indication of a need for additional loan-loss reserves in the future.
Two big New York banking companies, Chemical Bank and Bank of New York, also reported strong earnings for the period ending Sept. 30.
At Chemical, the fifth-largest U.S. bank, net income was $211.9 million, contrasted with a loss of $66.4 million for the same period in 1987. Third-quarter earnings were boosted by $63.7 million in one-time gains connected with the sale of some businesses and pension-fund transactions.
Others Show Improvement
Bank of New York reported record third-quarter earnings of $54.2 million, up 20% from the same quarter a year ago. Bank of New York last week completed its year-long effort to acquire Irving Bank, the first successful hostile takeover among major U.S. banks.
Continental Illinois, the big Chicago bank that nearly failed four years ago, continued to show improved earnings in the third quarter. The bank reported net income of $73.6 million, up 22% from the year-earlier period.
Earnings at Continental for the first nine months of 1988 were a record $202.3 million. The bank’s new management has withdrawn from consumer banking to concentrate on the potentially more lucrative specialized financial services, such as corporate finance and catering to medium to large businesses.
California’s sixth-largest bank, California First, said its third-quarter earnings rose 26% to $12.7 million. The improvement was primarily the result of a net increase in loan income, said Seishichi Itoh, president and chief executive of the San Francisco-based bank.
California First also said it expects to complete its $750-million acquisition of Union Bank of Los Angeles on Oct. 31. The new institution will be called Union Bank.